PAWAN KUMAR GOEL versus STATE OF U. P. & ANOTHER on 17 November 2022

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SUPREME COURT REPORTS

[2022] 10 S.C.R.

PAWAN KUMAR GOEL

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STATE OF U. P. & ANOTHER

(Criminal Appeal No. 1999 of 2022)

BNOVEMBER 17, 2022

[KRISHNA MURARI AND BELA M. TRIVEDI, JJ.]

Negotiable Instrument Act, 1881 – ss. 138, 141, 142 – Whethera director of a company would be liable for prosecution u/s. 138 ofNI Act without the company being arraigned as an accused – Held:CIf the complainant fails to make specific averments against thecompany in the complaint for the commission of an offence u/s. 138of NI Act, the same cannot be rectified by taking recourse to generalprinciples of criminal jurisprudence – The provisions of s.141 imposevicarious liability by deeming fiction which pre-supposes andDrequires the commission of the offence by the company or firm –Therefore, unless the company or firm has committed the offence asa principal accused, the persons mentioned in sub-Section (1) and(2) would not be liable to be convicted on the basis of the principlesof vicarious liablity.

ENegotiable Instrument Act, 1881 – ss. 138, 141, 142 – Whethera complaint u/s. 138 of NI Act would be liable to be proceededagainst the director of the company without their being anyaverments in the complaint that the director arrayed as an accusedwas in charge of and responsible for the conduct and business ofthe company – Held: It is settled that vicarious liability of a personFfor being prosecuted for an offence committed under the Act by acompany arises if at the material time he was in charge of and wasalso responsible to the company for the conduct of its business –Simply because a person is a director of a company, it does notnecessarily mean that he fulfils both the above requirements so asGto make him liable – In the instant case, perusal of the avermentsmade in the complaint goes to show beyond a shadow of doubt thatthere are no averments that respondent no. 2 (director of thecompany), at the time when the offence was committed, was in chargeof, and was responsible to the company for the conduct of thebusiness of the company.H

Dismissing the appeals, the Court

HELD: 1. The description of the respondent-accusedcontained in the complaint is that though the respondent-accusedwas described as a Director of ROL, but the company itself wasnot arrayed as a party in the complaint. A perusal of the avermentsmade in the complaint also goes to show beyond a shadow of doubtthat there are no averments that respondent no. 2, at the timewhen the offence was committed, was in charge of, and wasresponsible to the company for the conduct of the business of thecompany. This Court has been firm with the stand that if thecomplainant fails to make specific averments against the companyin the complaint for the commission of an offence under Section138 of NI Act, the same cannot be rectified by taking recourse togeneral principles of criminal jurisprudence. Needless to say, theprovisions of Section 141 impose vicarious liability by deemingfiction which pre-supposes and requires the commission of theoffence by the company or firm. Therefore, unless the companyor firm has committed the offence as a principal accused, thepersons mentioned in sub-Section (1) and(2) would not be liableto be convicted on the basis of the principles of vicarious Liablity.[Paras 18 & 19][115-C-H]

2. Arguments advanced by counsel for the appellant thatan additional accused can be impleaded subsequent to the filingof the complaint merits no consideration, once the limitationprescribed for taking cognizance of the offence under Section142 of NI Act has expired. More particularly, in view of the factthat neither any effort was made by the petitioner at any stage ofthe proceedings to arraign the company as an accused nor anysuch circumstances or reason has been pointed out to enable theCourt to exercise the power conferred by proviso to Section 142,to condone the delay for not making the complaint within theprescribed period of limitation. [Para 23][119-E-G]

3. The three-Judge Bench also took note of the earlierpronouncements of this Court in the case of State of Haryana Vs.Brij Lal Mittal & Ors., wherein it was held that vicarious liabilityof a person for being prosecuted for an offence committed underthe Act by a company arises if at the material time he was in AB

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Acharge of and was also responsible to the company for the conductof its business. Simply because a person is a director of a company,it does not necessarily mean that he fulfils both the aboverequirements so as to make him liable. Conversely, without beinga director a person can be in charge of and responsible to thecompany for the conduct of its business. The Bench alsoBconsidered the dictum of this Court in the case of K.P.G. Nair Vs.Jindal Menthol India Ltd., which was also a case under theNegotiable Instruments Act. In the said case, it was found thatthe allegations in the complaint did not in express words or withreference to the allegations contained therein make out a caseCthat at the time of commission of the offence, the appellant was incharge of and was responsible to the company for the conduct ofits business. It was held that requirement of Section 141 was notmet and the complaint against the accused was quashed. [Paras28 and 29][123-H; 124-A-D]

DAneeta Hada v. Godfather Travels & Tours Pvt. Ltd.(2012) 5 SCC 661 : [2012] 5 SCR 503; S.M.SPharmaceuticals Ltd. v. Neeta Bhalla & Another (2005)8 SCC 89 : [2005] 3 Suppl. SCR 371; State of Haryanav. Brij Lal Mittal & Ors. (1998) 5 SCC 343 : [1998] 3SCR 104 – relied on.

EN.Harihara Krishnan v. J. Thomas (2018) 13 SCC 663: [2017] 9 SCR 324; Bilakchand Gyanchand Co. v. A.Chinnaswami (1999) 5 SCC 693 : 1999 (10) JT 236;Rajneesh Aggarwal v. Amit. J. Bhalla (2001) 1 SCC631 : [2001] 1 SCR 54; Himanshu v. B. Shivamurthy &FAnother (2019) 3 SCC 797 : [2019] 1 SCR 991; K.K.Ahuja v. V.K. Vora & Anr. (2009) 10 SCC 48 : [2009] 9SCR 1144; K.P.G. Nair v. Jindal Menthol India Ltd.(2001) 10 SCC 218 : 2000 (1) Suppl. JT 519. - referredto.

GCase Law Reference

[2012] 5 SCR 503[2005] 3 Suppl. SCR 371[2017] 9 SCR 324H

relied onPara 8

relied onPara 8

referred toPara 10.3

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CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.1999 of 2022.

From the Judgment and Order dated 19.11.2019 of the High Courtof Judicature at Allahabad in Criminal Miscellaneous Writ Petition No.24632 of 2013.

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Criminal Appeal Nos. 2000, 2001, 2002 and 2003 of 2022.

Anubhav Kumar, Abhishek Swarup, M/s. Manoj Swarup and Co.,Advs. for the Appellant.

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Vishwa Pal Singh, Rahul Verma, Adesh Kumar Gill, Mohd. AlimKhan, Vikas Gothwal, Shantanu Krishna, Advs. for the Respondents.

The Judgment of the Court was delivered by KRISHNA MURARI, J.

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Leave granted.

2. The present appeals are directed against the final judgmentand order dated 19.11.2019 passed by the High Court of Judicature atAllahabad (hereinafter referred to as “High Court”) in four CriminalMiscellaneous Writ Petitions filed by the Respondents seeking quashingof the summoning order dated 18.03.2013 passed by the Additional ChiefJudicial Magistrate-II, Muzaffarnagar (hereinafter referred to as“Magistrate”) and order dated 02.12.2013 passed by the AdditionalSessions Judge, Muzaffarnagar (hereinafter referred to as “SessionsCourt”). The High Court allowed the Writ Petition and quashed theentire proceedings including the summoning order dated 18.03.2013 aswell as order dated 02.12.2013.

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3. As the present appeals are filed by the same Appellantchallenging the same impugned judgment, for the sake of brevity theyare being disposed of by this common Judgment. Criminal Appeal arisingout of Special Leave Petition (Crl.) No. 1697 of 2020 is taken up as a H

Alead case and the parties arrayed thereunder are to be taken in the samemanner for the other cases as well.

Factual background:

4. The Appellant is engaged in the business of sales of machineryand spare parts under the name and style of ‘M/s Pawan HardwareBStore’. Respondent No. 2 herein is one of the Director of Ravi OrganicsLimited, a private limited company, engaged in the manufacturing andsales of various types of chemicals. Both of them were having businessdealings and Ravi Organics Limited was having a running account withthe appellant. Respondent No. 2 is alleged to have issued an accountCpayee cheque for a sum of Rs. 10 Lakhs payable at Union Bank ofIndia, Muzaffarnagar, in favor of the Appellant towards discharge of itsliability for supply of materials made by the appellant. When the appellantpresented the cheque before the banker, it was dishonored on 24.12.2012.The Appellant, thereafter, sent a legal notice dated 01.01.2013 toRespondent No. 2 through registered post, which, though, was served,Dhowever, there was no response from Respondent No.2.

5. Despite service of notice, when neither there was any responsefrom the accused nor payment was made, appellant filed four criminalcomplaints against Respondent no. 2 for the offence punishable underSection 138 Negotiable Instruments Act, 1881 (hereinafter referred toEas ‘NI Act’) on the allegations that the account payee cheque bearingno. 802276 of Union Bank of India, Muzaffarnagar, for a sum of Rs.10lakhs dated 20.11.2012 issued by the respondent no. 2 towards theoutstanding bills when presented for clearance was dishonored on theground that the cheque amount exceeds arrangement.F

6. The Magistrate took cognizance of the said complaint andrequired the Appellant to get his statement recorded under Section 200of the Code of Criminal Procedure (hereinafter referred to as ‘Cr.P.C’).However, on 07.02.2013, the Appellant filed an affidavit to this effectseeking that it be read as a statement under Section 200 Cr.P.C. TheGMagistrate passed an order dated 18.03.2013 summoning RespondentNo. 2 for trial in Criminal Case No. 162 of 2013.

7. Being aggrieved by the summoning order dated 18.03.2013,Respondent no. 2 filed Criminal Revision No. 212 of 2013 before theSessions Court. Vide order dated 02.12.2013, the Sessions Court dismissedthe criminal revision petition and held that the cheque was issued againstH

outstanding payments arising out of commercial transactions betweenRespondent No. 2 and Appellant.

8. Respondent No. 2 aggrieved by the dismissal of the CriminalRevision approached the High Court by way of Criminal MiscellaneousWrit Petition No. 24632 of 2013 seeking quashing of the summoningorder dated 18.02.2013 passed by the Magistrate and also the orderdated 02.12.2013 passed by the Sessions Court. The High Court videimpugned judgment and order dated 19.11.2019 allowed the Writ Petitionand quashed the entire proceedings including the summoning order dated18.3.2013 passed by the Magistrate placing reliance on thepronouncement of this Court in the case of Aneeta Hada Vs. GodfatherTravels & Tours Pvt. Ltd.[1] and S.M.S Pharmaceuticals Ltd. Vs. NeetaBhalla & Another.[2]

8.1 The operative portion of the impugned judgment reads asunder:-

8.1 The operative portion of the impugned judgment reads asunder:- “Considering the facts and circumstance of the present case,according to the complaint itself, the cheque was issued forPawan Hardware Store, Sandeep talkies, near Court Road,Civil Lines, Muzaffar Nagar by the Director, Devendra KumarGarg- petitioner. It is not averred in the complaint thatDevendra Kumar Garg was in charge of and responsible forthe conduct of the business of the company at the time ofcommission of the offence and hence he will not be liable forcriminal action. It may be noted that the firm named as RaviOrganics Ltd., Nai Mandi, Muzaffar Nagar, who was theprincipal accused, has not been made party in the complaintas stated above and side by side the necessary avermentrequired to be made in the complaint satisfying therequirements of Section 141 of the Act are also lacking tomaintain prosecution as held in the decisions cited above. Inthis view of the matter, complaint itself is bad in law and theentire proceedings in pursuance thereof, including thesummoning order dated 18.3.2013 passed by Addl. ChiefJudicial Magistrate, Court No.2, Muzaffar Nagar in CriminalCase No.162 of 2013, Pawan Kumar Goel Vs. DevendraKumar Garg, under Section 138 N.I. Act, P.S. Civil Lines, 1 (2012) 5 SCC 661

2 (2005) 8 SCC 89

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ADistrict Muzaffar Nagar as well as order dated 2.12.2013passed by Addl. Sessions Judge, Court No.7, Muzaffarnagarin Criminal Revision No. 212 of 2013, Devendra Kumar GargVs. Pawan Kumar Goel, is nothing but an abuse of processof the court and is liable to be quashed.”

B9. We have heard Mr. Anubhav Kumar, learned counsel appearingon behalf of the Appellant and Mr. Vishwa Pal Singh, learned counselappearing on behalf of the Respondents.

10. Mr. Anubhav Kumar, learned counsel for the appellantsubmitted that the cheque issued by Respondent No. 2 towards paymentCof outstanding dues of supply of material due to the Appellant wasdishonoured and hence the respondent is guilty of committing offenceunder the Negotiable Instruments Act and was righly summoned by theTrial Court to face the trial. He further submitted that the Criminal RevisionPetition challenging the summoning order was also rightly dismissed butthe High Court committed a manifest error of law in causing interferenceDand quashing the summoning order as well as the proceedings.

10.1 It was further submitted that the High Court erred in notappreciating that respondent no. 2 was arrayed by name discribing himas a director of the Ravi Organics Limited and on account of atypographical error, the company could not be arrayed as accused no. 2Ein the complaint by name, though the details thereof is mentioned in thediscription of accused no. 1.

10.2. He further submitted that the complaint contained allnecessary factual allegations constituting each of the ingredients ofoffence under Section 138 of NI Act and there is no provision eitherFunder the NI Act or under the Criminal Procedure Code, which prohibitsthe amendment of a complaint or the impleadment of an additional accusedsubsequent to the filing of the complaint.

10.3 Reliance to support the aforesaid contentions has been placedby the learned counsel for the appellant on the decisions of this Court inGN.Harihara Krishnan Vs. J. Thomas[3], Bilakchand Gyanchand Co.Vs. A. Chinnaswami[4], and Rajneesh Aggarwal Vs. Amit. J. Bhalla[5].

3 (2018) 13 SCC 6634 (1999) 5 SCC 693H5 (2001) 1 SCC 631

11. In reply, learned counsel appearing on behalf of the RespondentNo. 2 submitted that the summoning order is erroneous as the proceedingsitself is not maintainable without the company having not been arrayedas an accused in the complaint.

11.1 It was also submitted that it is well settled by a catena ofdecisions that if a complaint under Section 138 of NI Act is filed inrespect of dishonor of cheque issued from the account of the company,it is incumbent on the part of the complainant to make necessaryaverments in the complaint that at the time when the offence wascommitted, the person accused was in charge of and responsible for theconduct and business of the company. This averment is an essentialrequirement of Section 141 of NI Act. He further submitted that theinfirmity in the complaint under Section 138 of NI Act for not impleadingthe company or not making specific averments in respect of thecommission of offence by the company as required under the Act, cannotbe said to be curable.

11.2 Reliance in support of the contention was placed by the learnedcounsel for the respondent on the decisions of this Court in the case ofAneeta Hada (Supra), SMS Pharmaceuticals Ltd. (Supra), andHimanshu Vs. B. Shivamurthy & Another[6].

12. Two main issues which falls for our consideration in this appeal are :-

(1) Whether a director of a company would be liable forprosecution under Section 138 of NI Act without thecompany being arraigned as an accused.

(2) Whether a complaint under Section 138 of NI Act wouldbe liable to be proceeded against the director of the companywithout their being any averments in the complaint that thedirector arrayed as an accused was in charge of andresponsible for the conduct and business of the company.

13. Before delving into the merits of the contention raised, it isimportant to analyze the cardinal provision which establishes the criminalliability upon the defaulter for dishonour of cheque i.e., Section 138 ofNI Act. Section 138 of the NI Act reads as under: - 6 (2019) 3 SCC 797

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A“138. Dishonour of cheque for insufficiency, etc., of funds inthe account. —

Where any cheque drawn by a person on an accountmaintained by him with a banker for payment of any amountof money to another person from out of that account for theBdischarge, in whole or in part, of any debt or other liability,is returned by the bank unpaid, either because of the amountof money standing to the credit of that account is insufficientto honour the cheque or that it exceeds the amount arrangedto be paid from that account by an agreement made with thatbank, such person shall be deemed to have committed anCoffence and shall, without prejudice to any other provisionsof this Act, be punished with imprisonment for [a term whichmay be extended to two years], or with fine which may extendto twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall applyDunless—

(a) the cheque has been presented to the bank within a periodof six months from the date on which it is drawn or within theperiod of its validity, whichever is earlier; (b)the payee or the holder in due course of the cheque, asEthe case may be, makes a demand for the payment of the saidamount of money by giving a notice in writing, to the drawerof the cheque, [within thirty days] of the receipt of informationby him from the bank regarding the return of the cheque asunpaid; and F(c)the drawer of such cheque fails to make the payment ofthe said amount of money to the payee or, as the case may be,to the holder in due course of the cheque, within fifteen daysof the receipt of the said notice.

Explanation— For the purposes of this section, “debt or otherGliability” means a legally enforceable debt or other liability.”

14. Section 141 of NI Act deals with offences by companies whileextending the liability to every individual; who when the offence wascommitted was responsible for the conduct of the business which alsoextends towards key managerial positions like that of the Director. Section141 of the NI Act reads as under: -H

141. Offences by companies. —

(1) If the person committing an offence under Section 138 isa company, every person who, at the time the offence wascommitted, was in charge of, and was responsible to thecompany for the conduct of the business of the company, aswell as the company, shall be deemed to be guilty of theoffence and shall be liable to be proceeded against andpunished accordingly:

Provided that nothing contained in this sub-section shallrender any person liable to punishment if he proves that theoffence was committed without his knowledge, or that he hadexercised all due diligence to prevent the commission of suchoffence:

Provided further that where a person is nominated as aDirector of a company by virtue of his holding any office oremployment in the Central Government or State Governmentor a financial corporation owned or controlled by the CentralGovernment or the State Government, as the case may be, heshall 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 acompany and it is proved that the offence has been committedwith the consent or connivance of, or is attributable to, anyneglect on the part of, any director, manager, secretary orother officer of the company, such director, manager, secretaryor other officer shall also be deemed to be guilty of thatoffence and shall be liable to be proceeded against andpunished accordingly.

Explanation. — For the purposes of this section—

(a) ”company” means any body corporate and includes a firmor other association of individuals; and (b)”director”, in relation to a firm, means a partner in thefirm.

15. A bare perusal of Section 138 and Section 141 of NI Actindicates that Section 138 of the NI Act casts criminal liability punishablewith imprisonment for a term that may be extended to two years or with A

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112SUPREME COURT REPORTS

Aa fine that may extend to twice the amount of the cheque, or with bothon a person who issues a cheque towards discharge of a debt or liabilityin whole or in part and the cheque is dishonoured by the bank onpresentation. While Section 141 extends such criminal liability in case ofa company to every person who at the time the offence was committed,was in charge of, and was responsible for the conduct of the business ofBthe company.

16. A two-Judge Bench of this Court in the case of K.K. Ahuja v.V.K. Vora & Anr.[7]after analysing the provisions contained in Section141 of the Act, observed as under :-C“16. Having regard to section 141, when a cheque issued bya company (incorporated under the Companies Act, 1956) isdishonoured, in addition to the company, the followingpersons are deemed to be guilty of the offence and shall beliable to be proceeded against and punished :

D(i) every person who at the time the offence was committed,was in charge of and was responsible to the company for theconduct of the business of the company;

(ii) any Director, Manager, Secretary or other officer of thecompany with whose consent and connivance, the offenceEunder section 138 has been committed; and

(iii) any Director, Manager, Secretary or other officer of thecompany whose negligence resulted in the offenceunder section 138of the Act, being committed by the company.

While liability of persons in the first category arises underFsub-section (1) of Section 141, the liability of personsmentioned in categories (ii) and (iii) arises under sub-section(2). The scheme of the Act, therefore is, that a person who isresponsible to the company for the conduct of the business ofthe company and who is in charge of business of the companyis vicariously liable by reason only of his fulfilling theGrequirements of sub- section (1). But if the person responsibleto the company for the conduct of business of the company,was not in charge of the conduct of the business of thecompany, then he can be made liable only if the offence was committed with his consent or connivance or as a result of hisnegligence.

17. The criminal liability for the offence by a companyunder section 138, is fastened vicariously on the personsreferred to in sub-section (1) of section 141by virtue of alegal fiction. Penal statutes are to be construed strictly. Penalstatutes providing constructive vicarious liability should beconstrued much more strictly. When conditions are prescribedfor extending such constructive criminal liability to others,courts will insist upon strict literal compliance. There is noquestion of inferential or implied compliance. Therefore, aspecific averment complying with the requirements of section141 is imperative. As pointed out in K. Srikanth Singh vs.North East Securities Ltd- 2007 (12) SCC 788, the mere factthat at some point of time, an officer of a company had playedsome role in the financial affairs of the company, will not besufficient to attract the constructive liability under section141of the Act.

18. Sub-section (2) of section 141 provides that a Director,Manager, Secretary or other officer, though not in charge ofthe conduct of the business of the company will be liable ifthe offence had been committed with his consent orconnivance or if the offence was a result of any negligenceon his part. The liability of persons mentioned in sub-section(2) is not on account of any legal fiction but on account ofthe specific part played - consent and connivance ornegligence. If a person is to be made liable under sub-section(2) of section 141, then it is necessary to aver consent andconnivance, or negligence on his part.”

17. The scope of Section 141 of NI Act was again exhaustivelyconsidered by this Court in S.M.S Pharamaceuticals (Supra):

“10. ….What is required is that the persons who are sought tobe made criminally liable under Section 141should be at thetime the offence was committed, in charge of and responsibleto the company for the conduct of the business of the company.Every person connected with the company shall not fall withinthe ambit of the provision. It is only those persons who werein charge of and responsible for conduct of business of the AB

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company at the time of commission of an offence, who will beliable for criminal action. It follows from this that if a directorof a Company who was not in charge of and was notresponsible for the conduct of the business of the company atthe relevant time, will not be liable under the provision. Theliability arises from being in charge of and responsible forconduct of business of the company at the relevant time whenthe offence was committed and not on the basis of merelyholding a designation or office in a company. Conversely, aperson not holding any office or designation in a Companymay be liable if he satisfies the main requirement of being incharge of and responsible for conduct of business of aCompany at the relevant time. Liability depends on the roleone plays in the affairs of a Company and not on designationor status. If being a Director or Manager or Secretary wasenough to cast criminal liability, the Section would have saidso. Instead of “every person” the section would have said“every Director, Manager or Secretary in a Company isliable”..etc. The legislature is aware that it is a case of criminalliability which means serious consequences so far as theperson sought to be made liable is concerned. Therefore, onlypersons who can be said to be connected with the commissionof a crime at the relevant time have been subjected to actio…

18. To sum up, there is almost unanimous judicial opinionthat necessary averments ought to be contained in a complaintbefore a person can be subjected to criminal process. A liabilityunder Section 141of the Act is sought to be fastenedvicariously on a person connected with a company, theprincipal accused being the company itself. It is a departurefrom the rule in criminal law against vicarious liability. Aclear case should be spelled out in the complaint against theperson sought to be made liable.Section 141of the Actcontains the requirements for making a person liable underthe said provision. That the respondent falls within theparameters of Section 141 has to be spelled out. A complainthas to be examined by the Magistrate in the first instance onthe basis of averments contained therein. If the Magistrate issatisfied that there are averments which bring the casewithin Section 141, he would issue the process. We have seen that merely being described as a director in a company is notsufficient to satisfy the requirement of Section 141. Even anon-director can be liable under Section 141of the Act. Theaverments in the complaint would also serve the purpose thatthe person sought to be made liable would know what is thecase which is alleged against him. This will enable him tomeet the case at the trial.”

(emphasis supplied)

18. Coming to the facts of the present case at hand, a perusal ofthe complaint filed as Annexure P-1 clearly goes to establish two facts :-

(i) The description of the respondent-accused contained in thecomplaint is as under :- “Mr. Devendra Kumar Garg, S/o Lala JagdishPrasad Garg, Director, Ravi Organics Limited, 19-A, New Mandi, Police Station-New Mandi, District-Muzaffarnagar.”

From the aforesaid, it is clear that though the respondent-accused was described as a Director of Ravi OrganicsLimited, but the company itself was not arrayed as a partyin the complaint.

(ii) A perusal of the averments made in the complaint goes toshow beyond a shadow of doubt that there are no avermentsthat respondent no. 2, at the time when the offence wascommitted, was in charge of, and was responsible to thecompany for the conduct of the business of the company.

19. This Court has been firm with the stand that if the complainantfails to make specific averments against the company in the complaintfor the commission of an offence under Section 138 of NI Act, the samecannot be rectified by taking recourse to general principles of criminaljurisprudence. Needless to say, the provisions of Section 141 imposevicarious liability by deeming fiction which pre-supposes and requiresthe commission of the offence by the company or firm. Therefore, unlessthe company or firm has committed the offence as a principal accused,the persons mentioned in sub-Section (1) and (2) would not be liable tobe convicted on the basis of the principles of vicarious liablity.

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A20. Reference in this connection may also be made to anotherjudgment of the two-Judge Bench of this Court in Himanshu Vs.B. Shivamurthy and Another (Supra), the facts wherein have a starksimilarity to the facts of the present case, considering the issue wherethe complaint was lodged only against the director without arraigningthe company as an accused and whether the company could beBsubsequently arraigned as an accused, it was observed as under:- A

“11. In the present case, the record before the Court indicatesthat the cheque was drawn by the appellant for LakshmiCement and Ceramics Industries Ltd., as its Director. A noticeof demand was served only on the appellant. The complaintCwas lodged only against the appellant without arraigning thecompany as an accused.

12. The provisions of Section 141 postulate that if the personcommitting an offence under Section 138is a company, 4(2018) 13 SC 663 every person, who at the time when theoffence was committed was in charge of or was responsibleto the company for the conduct of the business of the companyas well as the company, shall be deemed to be guilty of theoffence and shall be liable to be proceeded against andpunished.

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13. In the absence of the company being arraigned as anaccused, a complaint against the appellant was therefore notmaintainable. The appellant had signed the cheque as aDirector of the company and for and on its behalf. Moreover,in the absence of a notice of demand being served on theFcompany and without compliance with the proviso to Section138, the High Court was in error in holding that the companycould now be arraigned as an accused.”

21. This issue stands concluded by a decision of three-Judge Benchof this Court in the case of Aneeta Hada Vs. Godfather Travels &Tours (P) Ltd.(Supra), wherein it has been held that for maintainingthe prosecution under Section 141 of NI Act, arraigning of the companyas an accused is imperative and non-impleadment of the company wouldbe fatal for the complaint. It may be relevant to extract the followingfrom the said judgment :- G

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“58. Applying the doctrine of strict construction, we are ofthe considered opinion that commission of offence by thecompany is an express condition precedent to attract thevicarious liability of others. Thus, the words “as well as thecompany” appearing in the Section make it absolutelyunmistakably clear that when the company can be prosecuted,then only the persons mentioned in the other categories couldbe vicariously liable for the offence subject to the avermentsin the petition and proof thereof. One cannot be oblivious ofthe fact that the company is a juristic person and it has itsown respectability. If a finding is recorded against it, it wouldcreate a concavity in its reputation. There can be situationswhen the corporate reputation is affected when a director isindicted.

59. In view of our aforesaid analysis, we arrive at theirresistible conclusion that for maintaining the prosecutionunder Section 141of the Act, arraigning of a company as anaccused is imperative. The other categories of offenders canonly be brought in the dragnet on the touchstone of vicariousliability as the same has been stipulated in the provision itself.”

22. The observations made in the aforesaid judgment is also acomplete answer to the arguments advanced by learned counsel for theappellant that in the absence of any prohibition under the NI Act, theamendment in the complaint is permissible and the impleadment of anadditional accused subsequent to filing of the complaint, would not bebarred. At this juncture, we may also refer to the following observationsmade in the case of N. Harihara Krishnan Vs. J. Thomas (Supra) :- “26. The scheme of the prosecution in punishing under Section138 of the Act is different from the scheme of CrPC. Section138 creates an offence and prescribes punishment. Noprocedure for the investigation of the offence is contemplated.The prosecution is initiated on the basis of a written complaintmade by the payee of a cheque. Obviously such complaintsmust contain the factual allegations constituting each of theingredients of the offence under Section 138. Thoseingredients are: (1) that a person drew a cheque on an accountmaintained by him with the banker; (2) that such cheque whenpresented to the bank is returned by the bank unpaid; (3)

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Athat such a cheque was presented to the bank within a periodof six months from the date it was drawn or within the periodof its validity whichever is earlier; (4) that the payee demandedin writing from the drawer of the cheque the payment of theamount of money due under the cheque to payee; and (5)such a notice of payment is made within a period of 30 daysBfrom the date of the receipt of the information by the payeefrom the bank regarding the return of the cheque as unpaid.It is obvious from the scheme of Section 138 that each one ofthe ingredients flows from a document which evidences theexistence of such an ingredient. The only other ingredientCwhich is required to be proved to establish the commission ofan offence under Section 138 is that in spite of the demandnotice referred to above, the drawer of the cheque failed tomake the payment within a period of 15 days from the date ofthe receipt of the demand. A fact which the complainant canonly assert but not prove, the burden would essentially be onDthe drawer of the cheque to prove that he had in fact madethe payment pursuant to the demand.

27. By the nature of the offence under Section 138 of the Act,the first ingredient constituting the offence is the fact that aperson drew a cheque. The identity of the drawer of the chequeis necessarily required to be known to the complainant (payee)and needs investigation and would not normally be in disputeunless the person who is alleged to have drawn a chequedisputes that very fact. The other facts required to be provedfor securing the punishment of the person who drew a chequethat eventually got dishonoured is that the payee of the chequedid in fact comply with each one of the steps contemplatedunder Section 138 of the Act before initiating prosecution.Because it is already held by this Court that failure to complywith any one of the steps contemplated under Section 138would not provide “cause of action for prosecution”.Therefore, in the context of a prosecution under Section 138,the concept of taking cognizance of the offence but not theoffender is not appropriate. Unless the complaint containsall the necessary factual allegations constituting each of theingredients of the offence under Section 138, the Court cannottake cognizance of the offence. Disclosure of the name of the E

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person drawing the cheque is one of the factual allegationswhich a complaint is required to contain. Otherwise in theabsence of any authority of law to investigate the offenceunder Section 138, there would be no person against whom acourt can proceed. There cannot be a prosecution without anaccused. The offence under Section 138 is person specific.Therefore, Parliament declared under Section 142 that theprovisions dealing with taking cognizance contained in theCrPC should give way to the procedure prescribed underSection 142. Hence the opening of non obstante clause underSection 142. It must also be remembered that Section 142 doesnot either contemplate a report to the police or authorise theCourt taking cognizance to direct the police to investigateinto the complaint.

28. The question whether the respondent had sufficient causefor not filing the complaint against Dakshin within the periodprescribed under the Act is not examined by either of the courtsbelow. As rightly pointed out, the application, which is thesubject-matter of the instant appeal purportedly filed invokingSection 319 CrPC, is only a device by which the respondentseeks to initiate prosecution against Dakshin beyond theperiod of limitation stipulated under the Act.”

23. In view of the above, arguments advanced by learned counselfor the appellant that an additional accused can be impleaded subsequentto the filing of the complaint merits no consideration, once the limitationprescribed for taking cognizance of the offence under Section 142 of NIAct has expired. More particularly, in view of the fact that neither anyeffort was made by the petitioner at any stage of the proceedings toarraign the company as an accused nor any such circumstances or reasonhas been pointed out to enable the Court to exercise the power conferredby proviso to Section 142, to condone the delay for not making thecomplaint within the prescribed period of limitation.

24. Reliance placed by learned counsel for the appellant on thedecisions of this Court in the case of Aneeta Hada Vs. GodfatherTravels & Tours Pvt. Ltd. (Supra) is also totally mis-founded inasmuchas the ratio decidendi of the said case runs contrary to the argumentadvanced by learned counsel for the appellant. It may be relevant toextract the following observations made in paragraph 59 of the reports :- ABC

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120SUPREME COURT REPORTS

A“59. In view of our aforesaid analysis, we arrive at theirresistable conclusion that for maintaining the prosecutionunder Section 141 of the Act, arraigning of a company as anaccused is imperative. The other categories of offenders canonly be brought in the drag-net on the touchstone of vicariousliability as the same has been stipulated in the provision itself.BWe say so on the basis of the ratio laid down in C.V. Parekhwhich is a three-Judge Bench decision. Thus, the viewexpressed in sheoratan Agarwal does not correctly lay downthe law and, accordingly, is hereby overruled. The decisionin Anil Hada is overruled with the qualifier as stated in paraC51. The decision in Modi Distillery has to be treated to berestricted to its own facts as has been explained by ushereinabove.”

25. As already stated above, a perusal of the complaint goes toshow that even though respondent no. 2 has been arrayed as a respondent,Dbut there are no averments that respondent no.2 at the time when theoffence was committed was in charge of, and was responsible to thecompany for the conduct of its business. The averments made in thecomplaint are being reproduced hereunder :- “Complainant makes the following written submission:-E1. That the complainant has a firm which deals in all types ofmaterials used int eh machineries of factories.

2. Defendant’s firm M/s. Ravi Organics Limited is a chemicalfactory and the materials used in the machinery of defendant-firm are supplied by Complainant. Both the firms have oldFtrade relations and they do business with each other.

3. Defendant gave an account payee cheque bearing no.802276 of Union Bank of India, Muzaffarnagar ofRs.1,00,000/- (Rupees ten lakhs) on 20.11.2012 toComplainant against outstanding bill and asked him toGproduce the same in his bank for encashment after receivinghis signal.

4. After laying up claim many times by Complainant, defendanton 15.12.2012 asked the complainant to produce the saidcheque in his bank for entrenchment after four-five days, itHwill be cleared, complainant believed the defendant.

5. On 21.12.2012, Complainant produced the said cheque inhis bank State Bank of Patiala, Court Road, Muzaffarnagarfor encashment in favour of his A/c No. 55042570994. On24.12.2012, he was informed by his bank that the chequeamount exceeds arrangement made on 22.12.2012 bydefendant’s bank i.e., Union Bank of India and thus, the saidcheque was dishonoured.

6. Upon dishonouring the cheque (with the remarks ofExceeds arrangement), complainant issued a registered noticethrough his advocate to the defendant at his above givenaddress which was received by defendnat on 01.01.2013 buteven after lapse of 15 days, defendant has not made the abovepayment to complainant so far.

7. Defendant-accused deliberately gave the above chequewith intent to grab complainant’s money which has beendishonoured in the bank; thus, defendant-accused is guiltyof committing offence under Negotiable Instruments Act.

Therefore, you are requested to summon the accused andpunish him with the directions to pay the complainant thedouble of the above cheque amount under provisions of N.I.Act. Complainant shall remain obliged to you.”

26. The question whether it is necessary to specifically state inthe complaint that the person accused was in charge of, or responsiblefor the conduct of the business of the company, was subject matter ofreference by a two-Judge Bench of this Court along with other questionsto be adjudicated by a larger Bench. The following questions werereferred for consideration :- “(a) Whether for purposes of Section 141 of the NegotiableInstruments Act, 1881, it is sufficient if the substance of theallegation read as a whole fulfill the requirements of the saidsection and it is not necessary to specifically state in thecomplaint that the person accused was in charge of, orresponsible for, the conduct of the business of the company.

(b) Whether a director of a company would be deemed to bein charge of, and responsible to, the company for conduct ofthe business of the company and, therefore, deemed to beguilty of the offence unless he proved to the contrary.

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A(c) Even if it is held that specific averments are necessary,whether in the absence of such averments the signatory ofthe cheque and or the managing directors or joint managingdirector who admittedly would be in charge of the companyand responsible to the company for conduct of its businesscould be proceeded against.”B

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27. A three-Judge Bench in the case of S.M.S. Pharmaceuticals Ltd. Vs. Neeta Bhalla (Supra), considering the aforesaid questionsafter analysing the provisions of Section 141 of the Act and specially thewords “who, at the time the offence was committed, was in chargeof, and was responsible to the company for the conduct of theCbusiness of the company, as well as the company, shall be deemedto be guilty of the offence, etc.” used in the said Section, observed asunder :-

“While analysing Section 141 of the Act, it will be seen that itoperates in cases where an offence under Section 138iscommitted by a company. The key words which occur in theSection are “every person”. These are general words andtake every person connected with a company within theirsweep. Therefore, these words have been rightly qualified byuse of the words :

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“who, at the time the offence was committed, was in chargeof, and was responsible to the company for the conduct ofthe business of the company, as well as the company, shall bedeemed to be guilty of the offence etc.”

What is required is that the persons who are sought to bemade criminally liable under Section 141should be at the timethe offence was committed, in charge of and responsible tothe company for the conduct of the business of the company.Every person connected with the company shall not fall withinthe ambit of the provision. It is only those persons who werein charge of and responsible for conduct of business of thecompany at the time of commission of an offence, who will beliable for criminal action. It follows from this that if a directorof a Company who was not in charge of and was notresponsible for the conduct of the business of the company atthe relevant time, will not be liable under the provision. The F

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liability arises from being in charge of and responsible forconduct of business of the company at the relevant time whenthe offence was committed and not on the basis of merelyholding a designation or office in a company. Conversely, aperson not holding any office or designation in a Companymay be liable if he satisfies the main requirement of being incharge of and responsible for conduct of business of aCompany at the relevant time. Liability depends on the roleone plays in the affairs of a Company and not on designationor status. If being a Director or Manager or Secretary wasenough to cast criminal liability, the Section would have saidso. Instead of “every person” the section would have said“every Director, Manager or Secretary in a Company isliable”..etc. The legislature is aware that it is a case of criminalliability which means serious consequences so far as theperson sought to be made liable is concerned. Therefore, onlypersons who can be said to be connected with the commissionof a crime at the relevant time have been subjected to action.

11. A reference to sub-section (2) of Section 141fortifies theabove reasoning because sub-section (2) envisages directinvolvement of any Director, Manager, Secretary or otherofficer of a company in commission of an offence. This sectionoperates when in a trial it is proved that the offence has beencommitted with the consent or connivance or is attributableto neglect on the part of any of the holders of these offices ina company. In such a case, such persons are to be held liable.Provision has been made for Directors, Managers, Secretariesand other officers of a company to cover them in cases oftheir proved involvement.

12. The conclusion is inevitable that the liability arises onaccount of conduct , act or omission on the part of a personand not merely on account of holding an office or a positionin a company. Therefore, in order to bring a casewithin Section 141of the Act the complaint must disclose thenecessary facts which make a person liable.”

28. The three-Judge Bench also took note of the earlierpronouncements of this Court in the case of State of Haryana Vs. Brij ABC

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ALal Mittal & Ors.[8], wherein it was held that vicarious liability of aperson for being prosecuted for an offence committed under the Act bya company arises if at the material time he was in charge of and wasalso responsible to the company for the conduct of its business. Simplybecause a person is a director of a company, it does not necessarilymean that he fulfils both the above requirements so as to make himBliable. Conversely, without being a director a person can be in charge ofand responsible to the company for the conduct of its business.

29. The Bench also considered the dictum of this Court in thecase of K.P.G. Nair Vs. Jindal Menthol India Ltd.[9], which was also acase under the Negotiable Instruments Act. In the said case, it wasCfound that the allegations in the complaint did not in express words orwith reference to the allegations contained therein make out a case thatat the time of commission of the offence, the appellant was in charge ofand was responsible to the company for the conduct of its business. Itwas held that requirement of Section 141was not met and the complaintDagainst the accused was quashed.

30. After analyzing the aforesaid and various otherpronouncements, the three-Judge Bench in paragraph 18 of the reports,observed as under :- “18. To sum up, there is almost unanimous judicial opinionEthat necessary averments ought to be contained in a complaintbefore a persons can be subjected to criminal process. Aliability under Section 141of the Act is sought to be fastenedvicariously on a person connected with a Company, theprincipal accused being the company itself. It is a departureFfrom the rule in criminal law against vicarious liability. A clearcase should be spelled out in the complaint against the personsought to be made liable. Section 141of the Act contains therequirements for making a person liable under the saidprovision. That respondent falls within parameters of Section141has to be spelled out. A complaint has to be examined byGthe Magistrate in the first instance on the basis of avermentscontained therein. If the Magistrate is satisfied that there areaverments which bring the case within Section 141 he wouldissue the process. We have seen that merely being described 8 (1998) 5 SCC 343H9 (2001) 10 SCC 218

as a director in a company is not sufficient to satisfy therequirement of Section 141. Even a non director can be liableunder Section 141of the Act. The averments in the complaintwould also serve the purpose that the person sought to bemade liable would know what is the case which is allegedagainst him. This will enable him to meet the case at the trial.”

31. The Bench answered the questions posed in the reference asunder :- “19. (a) It is necessary to specifically aver in a complaintunder Section 141 that at the time the offence was committed,the person accused was in charge of, and responsible for theconduct of business of the company. This averment is anessential requirement of Section 141 and has to be made in acomplaint. Without this averment being made in a complaint,the requirements of Section 141cannot be said to be satisfied.

(b) The answer to question posed in sub-para (b) has to be innegative. Merely being a director of a company is not sufficientto make the person liable under Section 141of the Act. Adirector in a company cannot be deemed to be in charge ofand responsible to the company for conduct of its business.The requirement of Section 141 is that the person sought tobe made liable should be in charge of and responsible for theconduct of the business of the company at the relevant time.This has to be averred as a fact as there is no deemed liabilityof a director in such cases.

(c) The answer to question (c ) has to be in affirmative. Thequestion notes that the Managing Director or Joint ManagingDirector would be admittedly in charge of the company andresponsible to the company for conduct of its business. Whenthat is so, holders of such positions in a company becomeliable under Section 141of the Act. By virtue of the officethey hold as Managing Director or Joint Managing Director,these persons are in charge of and responsible for the conductof business of the company. Therefore, they get coveredunder Section 141. So far as signatory of a cheque which isdishonoured is concerned, he is clearly responsible for theincriminating act and will be covered under sub-section (2)”of Section 141.

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A32. In view of the undisputed facts of the present case injuxtaposition to the judicial pronouncements of this Court referred toabove, we have no hesitation in holding that no error has been committedby the High Court in allowing the Writ Petition filed by the respondentno. 2 and quashing the impugned order and the proceedings.

B33. Thus, the impugned orders do not warrant any interference.As a result, the appeals fail and, accordingly, stand dismissed.

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Ankit Gyan

(Assisted by : Rahul Rathi, LCRA)

Appeals dismissed.

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