SUPREME COURT HOLDS APPELLANT-ACCUSED NOT VICARIOUSLY LIABLE FOR DISHONOUR OF CHEQUE, POST-RETIREMENT FROM FIRM

INTRODUCTION

A two-Judge Bench comprising of Justice C.T. Ravikumar and Justice Sanjay Kumar passed an Order dated 10.10.2023 in Siby Thomas Vs. M/s. Somany Ceramics Ltd. in Criminal Appeal No. 3139 of 2023 {Special Leave Petition (Crl.) No. 12 of 2020} and held that vicarious liability can only be attracted if the ingredients of Section 141 (1) of the Negotiable Instruments Act 1881 (NI Act) (Offences by companies) are satisfied.

FACTS

i) The Respondent, namely, M/s. Somany Ceramics Ltd. had filed a Complaint against a Partnership Firm, namely, M/s. Tile Store (“Accused no. 1”) and the partners of the Firm for issuing a dishonored Cheque on 21.08.2015. One of the Partners of the Firm was the Appellant- Accused no. 4, Mr. Siby Thomas, who appeared before the Ld. Chief Judicial Magistrate (“CJM”) of Bahadurgarh on 20.10.2015 in COMA- 321-2015.

ii) The Appellant, while the matter was pending before the CJM, approached the High Court of Punjab and set up twin grounds to seek quashing of the Complaint against him before the High Court of Punjab by stating that he had resigned from the Partnership Firm on 28.05.2013 and the Cheque in issue was dated 21.08.2015 and that the Complaint was devoid of mandatory averments which are required to be made in terms of Section 141 (1)[1] of the Negotiable Instruments Act, 1881 (Offences by companies).

iii) The High Court of Punjab found that the contentions in regard to the maintainability of the Complaint against the Appellant, i.e. his retirement from the Partnership Firm prior to the issuance of the Cheque in question, was a matter of evidence and the Appellant had to lead the evidence and prove the fact.

iv) Further, it was held that the Complaint cannot be rejected in this matter at the behest of the Appellant at the initial stage, in the exercise of the powers under Section 482 of the Code of Criminal Procedural 1973 (Cr. P.C) (Saving of inherent powers of High Court). Hence, the High Court refused to quash the Complaint vide Order dated 06.12.2019 in CRM-M-52299-2019.

v) Aggrieved by the Order dated 06.12.2019 passed by the High Court of Punjab, the Appellant filed Criminal Appeal No. 3139 of 2023 in the Supreme Court.

SUPREME COURT ANALYSIS

The Apex Court, vide Order dated 10.10.2023, made the following observations:

1) In the present case, the Counsel for the Appellant contended that even if the Appellant’s retirement from the Partnership Firm on 28.05.2013 was prior to the issuance of Cheque in question i.e. 21.08.2015, the said fact is a matter of evidence. Thus, the Complaint against the Appellant was liable to be quashed for the absence of mandatory averments required to be made in terms of Section 141 (1) of NI Act, in the Complaint.

2) Further, the Division Bench of the High Court observed that the parties were at an issue over the question as to whether the averments in the Complaint satisfied the requirements under Section 141(1) of NI Act.

3) The Supreme Court held that the Complainant had to make specific averments in the Complaint, which would have made the Accused vicariously liable.

4) Subsequently, the Bench held that the primary responsibility of the Complainant was to generally know who was in charge of the Firm at the relevant time when the offence was committed.

5) The Apex Court relied on the order passed by the Supreme Court in P Mani and Mohan Dairy Vs. Dr. Snehalatha Elangovan 2022 SCC Online SC 1238 as follows:

“47

 a.) ……

b.) The complainant is supposed to know only generally as to who were in charge of the affairs of the company or firm, as the case may be. The other administrative matters would be within the special knowledge of the company or the firm and those who are in charge of it. In such circumstances, the complainant is expected to allege that the persons named in the Complaint are in charge of the affairs of the company/firm

In Gunmala Sales Private Limited (supra), this Court after an exhaustive review of its earlier decisions on Section 141 of the NI Act, summarized its conclusion as under:- “(a) Once in a Complaint filed under Section 138 read with Section 141 of the NI Act the basic averment is made that the Director was in charge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed, the Magistrate can issue process against such Director;

(b) ……

(c) ……

(d) No restriction can be placed on the High Court’s powers under Section 482 of the Code. The High Court always uses and must use this power sparingly and with great circumspection to prevent inter alia the abuse of the process of the Court. There are no fixed formulae to be followed by the High Court in this regard and the exercise of this power depends upon the facts and circumstances of each case. The High Court at that stage does not conduct a mini trial or roving inquiry, but nothing prevents it from taking unimpeachable evidence or totally acceptable circumstances into account which may lead it to conclude that no trial is necessary qua a particular Director.

The principles of law and the dictum as laid in Gunmala Sales Private Limited (supra), in our opinion, still holds the field and reflects the correct position of law.”

6) The Bench, after going through the Complaint filed by the Respondent, held that it was not averred anywhere in the Complaint that the Appellant was in charge of the conduct of the business of the Firm at the relevant time when the Cheque was issued.

7) That, it was only stated that the Accused no. 2 to 6 being the Partners of the Firm were responsible for the day-to-day activities and business of the Firm.

8) Further, the Apex Court relied on the principle laid down in Ashok Shewakarmani Vs. State of Andhra Pradesh 2023 SCC Online SC 958, and held that it is evident that a vicarious liability would be attracted only when the ingredients of Section 141 (1) of the NI Act are satisfied.:

“19. Section 141 is an exception to the normal rule that there cannot be any vicarious liability when it comes to a penal provision. The vicarious liability is attracted when the ingredients of subsection 1 of Section 141 are satisfied. The Section provides that every person who at the time the offence was committed was in charge of, and was responsible to the Company for the conduct of business of the company, as well as the company shall be deemed to be guilty of the offence under Section 138 of the NI Act. In the light of sub-section 1 of Section 141, we have perused the averments made in the Complaints subject matter of these three appeals. The allegation in paragraph 1 of the Complaints is that the appellants are managing the company and are busy with day to day affairs of the company. It is further averred that they are also in charge of the company and are jointly and severally liable for the acts of the accused No.1 company. The requirement of sub-section 1 of Section 141 of the NI Act is something different and higher. Every person who is sought to be roped in by virtue of sub-section 1 of Section 141 NI Act must be a 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. Merely because somebody is managing the affairs of the company, per se, he does not become in charge of the conduct of the business of the company or the person responsible for the company for the conduct of the business of the company. For example, in a given case, a manager of a company may be managing the business of the company. Only on the ground that he is managing the business of the company, he cannot be roped in based on sub-section 1 of Section 141 of the NI Act. The second allegation in the Complaint is that the appellants are busy with the day-to-day affairs of the company. This is hardly relevant in the context of subsection 1 of Section 141 of the NI Act. The allegation that they are in charge of the company is neither here nor there and by no stretch of the imagination, on the basis of such averment, one cannot conclude that the allegation of the second respondent is that the appellants were also responsible to the company for the conduct of the business. Only by saying that a person was in charge of the company at the time when the offence was committed is not sufficient to attract sub-section 1 of Section 141 of the NI Act.”

9) Applying the aforesaid principles to the present case, the Division Bench held that as the averments in the Complaint are not sufficient to attract the provisions under Section 141 (1) of NI Act, to create vicarious liability upon the Appellant, the Appellant is entitled to succeed in this Appeal.

CONCLUSION

Thus, based on the aforesaid observations, the Supreme Court set aside the High Court Order dated 06.12.2019 and thereby, quashed the Criminal Complaint to the extent filed by the Respondent against the Appellant-Accused before Ld. CJM. As a result, the Appeal filed by the Appellant-Accused was allowed.

 

Kartik Khandekar

Associate

The Indian Lawyer

[1] Section 141-Offences of 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: 22 [Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.]

(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation.— For the purposes of this section,—

(a) “company” means any body corporate and includes a firm or other association of individuals; and

(b) “director”, in relation to a firm, means a partner in the firm.]