Ashok Shewakramani vs State Of Andhra Pradesh

NON-REPORTABLE

IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO.879 OF 2023

ASHOK SHEWAKRAMANI & ORS. ... APPELLANT(S)

VS.

STATE OF ANDHRA PRADESH & ANR. ... RESPONDENT(S)

WITH

CRIMINAL APPEAL Nos. 884, 882, 880, 881 and 883 of 2023

J U D G M E N T

ABHAY S.OKA, J.

CRIMINAL APPEAL NO.879 OF 2023

1. We have heard the learned senior counsel appearing

for the appellants. The appellants are Accused Nos.5, 6

and 7 in a complaint filed by the second Respondent under

Section 138 of the Negotiable Instruments Act, 1881 (for

short, `the NI Act’).

2. By the impugned Judgment, the High Court has

dismissed a petition filed by the appellants under Section Signature Not Verified Digitally signed by Anita Malhotra Date: 2023.08.09 482 of the Code of Criminal Procedure, 1973 (for short, 13:57:54 IST Reason:

Criminal Appeal No.879 of 2023 Page 1 of 14

`the Code’) for quashing the complaint. By the impugned

Judgment, several petitions under Section 482 of the Code

were decided arising out of different complaints filed by

the same complainant.

3. At the outset, we may note here that in paragraph 10

of the impugned Judgment, the High Court has purported to

quote the relevant paragraph from the complaint bearing CC

No.1/2012, which is the subject matter of this appeal. We,

however, find that the averments made in this complaint

are different.

4. The main issue canvassed by the learned Senior

Counsel appearing for the appellants is that though the

appellants were directors of the first accused company at

a relevant time, the mandatory averments which are

required to be made in terms of sub-section (1) of Section

141 of the NI Act have not been made. The response of the

learned counsel appearing for Respondent No.2 is that in

substance, in paragraph 7 of the complaint, the said

averments are found. Secondly, the learned counsel

submitted that the appellants have not replied to the

statutory notice issued under Section 138 of the NI Act.

In support of the second contention regarding the failure

of the appellants to give a reply to the statutory notice,

he relies upon a decision of this Court in the case of

Criminal Appeal No.879 of 2023 Page 2 of 14 “S.P. Mani and Mohan Diary Versus Dr Snehalatha

Elangovan”1.

5. We have carefully perused the complaint and the

affidavit in support of the complaint. In paragraph 4 of

the complaint, it is stated that the accused No.1 is the

Company on whose account the two cheques were issued and

accused No.2 is the Managing Director of the accused No.1.

The present appellants have been described as the

Directors of the accused No.1 - Company. The cheques were

signed by accused No.2 who is the Managing Director of the

accused No.1 company. The only material averments even

according to the case of learned counsel for Respondent

No.2 are found in paragraph 7 of the complaint which read

thus:

“7. The Accused 2 to 7 are fully aware of the business transactions of the Accused No.1 company. They are all jointly and severally liable for the transactions of the Accused No. 1 company. All the accused are fully aware of the issuance of the above cheques without balance in the account. They are also fully aware that the cheques will be dishonoured. It clearly establishes that all the Accused with an intention to deceive and defraud the complainant have issued the cheques and directed the complainant to present the cheques. So, the accused have issued the above cheques knowing fully well,

1. 2022 SCC Online SC 1238

Criminal Appeal No.879 of 2023 Page 3 of 14 that there are no funds in their account. The accused have not the cheques amount within 15 days after receipt of the notice. The cheques are issued towards legally enforceable debt and liability of the complainant. So, they have committed an offence, punishable under section 138 of N.I. Act.”

6. It is also necessary to note the averments made in

Paragraph 8 of the complaint in which the second

respondent stated that the statutory notice of demand was

not served on the accused. In fact, the second respondent

has relied upon the returned postal covers. Even in the

affidavit in support of the complaint, the second

respondent has come out with a case that the demand notice

was not served.

7. In fact, the service of notice of demand is a

condition precedent for filing a complaint in view of

clause (c) of Section 138 of the NI Act. This is one

ground on which the complaint must fail.

8. Now we come to the averments made in Paragraph 7.

Firstly, it is stated that all the Directors were liable

for the transactions of the accused No.1 company.

Secondly, it is stated that all the accused were fully

aware of the issuance of the cheques subject matter of the

complaint, and they were also aware that the cheques will

be dishonoured. Further, it is alleged that all the

Criminal Appeal No.879 of 2023 Page 4 of 14 accused knew that there were no funds in the account of

accused No.1 – company.

9. Sub-section 1 of Section 141 of the NI Act required

the complainant to aver that the present appellants at the

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

and were responsible to the company for the conduct of the

business of the company. In the present case, all that the

second respondent has alleged is that the appellants were

liable for transactions of the company and that they were

fully aware of the issuance of the cheques and dishonour

of the cheques.

10. Therefore, even if we decide to take a broad and

liberal view of the pleadings in the complaint, we are

unable to draw a conclusion that compliance with the

requirements of sub-Section 1 of Section 141 N.I. Act was

made by the second respondent. The most important averment

which is required by sub-Section (1) of Section 141 of the

NI Act is that the directors were in charge of, and were

responsible for the conduct of the company. The appellants

are neither the signatories to the cheques nor are whole-

time directors. The decision in the case of “S.P. Mani and

Mohan Diary Versus Dr. Snehalatha Elangovan”1 will have no

application as in the present case, the statutory notice

was admittedly not served to the accused. Obviously, the

Criminal Appeal No.879 of 2023 Page 5 of 14 High Court has not adverted to aforesaid two glaring

deficiencies in the complaint.

11. In the circumstances, the appeal must succeed and

the impugned Order is quashed and set aside, only in so

far as the present appellants are concerned. Accordingly,

a complaint bearing CC No.1/12 pending in the Court of

Judicial Magistrate, First Class, Nandyal is quashed only

in so far as present appellants are concerned.

12. The appeal is accordingly allowed on the above

terms.

CRIMINAL APPEAL NOS.884 and 882 of 2023

13. This appeal takes exception to the order of the

High Court by which the prayer made by the present

appellants for quashing a complaint under Section 138 of

the NI Act has been rejected. With the assistance of the

learned counsel appearing for the parties, we have

perused the averments made in the complaints (Complaint

Case Nos.963 and 692 of 2011). The present appellants

are the accused Nos. 5 to 7. In two places in the

complaint in paragraphs Nos. 2 and 4, the second

respondent-complainant has averred that accused No.2 is

the Managing Director of the accused No.1 company and

accused Nos. 3 and 9 are the directors of the accused

Criminal Appeal No.879 of 2023 Page 6 of 14 No.1 company. Therefore, the present appellants are not

even described as the directors of the first accused

company. Moreover, we find that the averments in terms

of Section 141(1) of the NI Act are not found at all in

the entire complaint. These facts were not noticed by

the High court. Hence, the appeals must succeed and the

impugned judgment insofar as the appellants are concerned

is set aside. Complaint Nos.963 and 692 of 2011 pending

in the Court of Judicial Magistrate First Class, Nandyal

is quashed so far as the present appellants are

concerned.

14. The appeals are accordingly allowed.

CRIMINAL APPEAL NOS.880, 881 and 883 OF 2023

15. The facts leading to the filing of these three

appeals are identical. The prayer made by the appellants

under Section 482 of the Code of Criminal Procedure, 1973

for quashing the complaint filed by the second respondent

has been rejected by the High Court by the impugned

judgment. The present appellants have been arrayed as

accused Nos.5 to 7 in the complaint filed by the second

respondent under Section 138 of the NI Act. The accused

No.1 in the complaint is a limited company. The accused

No.2 is the Chairman of the company, and the accused No.3

Criminal Appeal No.879 of 2023 Page 7 of 14 is the Managing Director of the Company. The accused

Nos. 5 to 7 have been described as directors of the

accused No.1 company. The only issue which we are called

upon to decide is whether the second respondent has

incorporated the averments which are necessary to be

incorporated in a complaint under Section 138 of the NI

Act in view of sub-section 1 of Section 141 of the NI

Act. The averments made in the complaints which are the

subject matter of these three appeals are identical. We

are referring to the averments made in one of the three

complaints (in Complaint Case No.74 of 2011) in paragraph

1:

"1) It is submitted that the complainant is the proprietor of Sri Chakra Cotton Traders, doing business in Cotton, resident of bearing Door Number 3/917-I, Sri Chackra Nilayam, Y.M.R. Colony, Proddatur Town-516360, Kadapa Distrcit, A.P. The accused No.1 is the Private Limited concerned Company and registered under Companies Act. The Accused No.2 is Chairman of Accused No.1.

Accused No.3 is the Managing Director of Accused No.2 Accused No.4 to 7 are the directors of the accused No.1 Company and Accused No. 2 to 7 are Managing the Company and busy with day to day affairs of the Company and all are managing the

Criminal Appeal No.879 of 2023 Page 8 of 14 company and also in charge of the company and all are jointly and severally liable for the acts of accused No.1 Company."

16. The learned counsel appearing for the appellants

has relied upon various decisions of this Court in

support of his plea that the material averments which are

required to be incorporated in terms of sub-section (1)

of Section 141 of NI Act are completely lacking in these

cases. He mainly relied upon a decision of this Court in

the case of Ashoke Mal Bafna v. M/s. Upper India Steel

Mfg. & Engg. Co.Ltd.2 He would submit that for attracting

vicarious liability under sub-section 1 of Section 141 of

the NI Act, it is mandatory to make averments as

specified therein.

17. The learned counsel appearing for the second

respondent-complainant firstly relied upon a decision of

this Court in the case of S.P.Mani and Mohan Dairy v. Dr

Snehalatha Elangovan1 and especially what is held in the

concluding part of the said judgment in paragraph 47. He

also placed reliance on various decisions which were

considered by the High Court while rejecting the prayer

made by the appellants under Section 482 of the Code for

quashing the complaints.

2. (2018) 14 SCC 202

Criminal Appeal No.879 of 2023 Page 9 of 14

18. After having considered the submissions, we are of

the view that there is non-compliance on the part of the

second respondent with the requirements of sub-section 1

of Section 141 of the NI Act. We may note here that we

are dealing with the appellants who have been alleged to

be the Directors of the accused No.1 company. We are not

dealing with the cases of a Managing Director or a whole-

time Director. The appellants Have not signed the

cheques. In the facts of these three cases, the cheques

have been signed by the Managing Director and not by any

of the appellants.

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 sub-section 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

Criminal Appeal No.879 of 2023 Page 10 of 14 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 sub-

section 1 of Section 141 of the NI Act. The allegation

that they are in charge of the company is neither here

Criminal Appeal No.879 of 2023 Page 11 of 14 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. Sub-section 1 of Section

141 reads thus:

"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 deeded 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 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

Criminal Appeal No.879 of 2023 Page 12 of 14 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.]"

20 On a plain reading, it is apparent that the words

"was in charge of" and "was responsible to the company

for the conduct of the business of the company" cannot be

read disjunctively and the same ought be read

conjunctively in view of use of the word "and" in

between.

21. Therefore, even by giving a liberal construction to

what is averred in paragraph 1 of the complaints, we are

unable to accept the submission made by the learned

counsel appearing for the second respondent that these

averments substantially comply with sub-section (1) of

Section 141 of the NI Act.

22. Accordingly, appeals are allowed. The impugned

judgment is set aside insofar as the appellants are

concerned.

Criminal Appeal No.879 of 2023 Page 13 of 14

23. Complaint Nos.25, 169 and 74 of 2011 stand quashed

only insofar as accused Nos. 5 to 7 are concerned.

24. There will be no order as to costs.

..........................J. (ABHAY S.OKA)

..........................J. (SANJAY KAROL)

NEW DELHI;

August 03, 2023.

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