Central Bank Of India vs M/S. Asian Global Ltd.& Ors

2003 and Crl. M.C. No.2166 of 2003, were also

disposed of in favour of the Respondent Nos.1 and

2, M/s Asian Global Ltd. and its Director, Mr.

Rajiv Jain. Several other petitions filed by Sarla

Jain, a Director of the Respondent No.1 Company,

also challenging the complaint filed by the

Petitioner Bank and praying for discharge therefrom

and quashing thereof, were allowed by the aforesaid

judgment. Consequently, the Bank has also filed

SLP (Crl.) Nos.5094, 5095 and 5096 of 2008, which

are also being heard along with SLP(Crl.)No.5093 of

2008.

2. The facts as disclosed indicate that in 1993

the Respondent No.1 had availed of various credit

facilities from the Petitioner Bank, including

packing credit facility and overdraft facility.

For whatever reason, the account of the Respondent

No.1 is alleged to have become irregular compelling 3

the Bank to call upon the Respondent No.1 Company

to regularize its packing credit account. It

appears that corporate guarantee for due repayment

of the outstanding dues of the Respondent No.1

Company was given by the Respondent No.3 Company

which was allegedly a sister concern of the

Respondent No.1 and the Respondent No.2 while being

a Director of Respondent No.1 Company was a Joint

Managing Director of the Respondent No.3 Company.

3. In order to discharge its liability to the

Petitioner Bank, the Respondent No.3 Company issued

Cheque No.255242 dated 16.5.1996, along with three

other cheques, each for a sum of Rs.5 lakhs in

favour of the Respondent No.1 Company which was

deposited by the Respondent No.1 Company with the

Petitioner Bank towards the outstanding dues of the

Respondent No.1 Company. On being presented for

encashment on 16.5.1996, the said cheques were

returned to the Petitioner Bank with the remarks

"funds insufficient". On the request made by the

Respondents, the cheque was again presented for 4

payment on 31.7.1996, but was again returned by the

New Delhi Gulmohar Park Branch of the Petitioner

Bank with the remark "since account closed". It is

only thereafter that the Petitioner Bank filed a

complaint against the Respondents under Sections

138 and 139 of the Negotiable Instruments Act,

1881, read with Section 120-B and 420 I.P.C., upon

which cognizance was taken by the Additional Chief

Metropolitan Magistrate, Patiala House, New Delhi,

on 27.1.2001.

4. Aggrieved by the order issuing summons, the

Respondent Nos.1 to 3 and other accused persons,

being the Directors of the Respondent Nos.1 to 3

Companies, moved an application under Section

245(2) Cr.P.C. praying for recall of the order

issuing summons and consequent discharge from the

criminal proceedings initiated on the complaint

filed by the Petitioner Bank on the ground that

there was no privity of contract between the

Petitioner Bank and the Respondent No.3, Asian

Consolidated Industries Ltd. (ACIL). On the other 5

hand, the Petitioner Bank took the stand that being

a "holder in due course", the Bank was entitled to

maintain its complaint.

5. By its order dated 28.7.2003 the Trial Court

rejected the application filed by the Respondents

for discharge upon holding that under Section

118(E) of the Negotiable Instruments Act, 1881,

hereinafter referred to as "the 1881 Act", a

"holder" of a cheque is presumed to be a "holder in

due course" unless and until the contrary is proved

by the accused.

6. Being aggrieved by the said order dated

28.7.2003, the Respondent Nos.1 and 2 moved the

Delhi High Court under Section 482 Cr.P.C. in Crl.

M.C. No.5167 of 2003. As indicated hereinbefore,

separate petitions were filed, being Crl. M.C.

No.5161 of 2003, Crl. M.C. No.5162 of 2003 and Crl.

M.C. No.2166 of 2003, which were heard and disposed

of in favour of the Respondent Nos.1 and 2 by the

learned Single Judge of the Delhi High Court by 6

discharging the respondents and quashing the

complaint and the orders issuing summons.

7. It is against the said order of the High Court

that the present Special Leave Petitions have been

filed by the Central Bank of India.

8. On behalf of the Petitioner Bank it was

submitted that the High Court had misconstrued the

provisions of Sub-Section (1) of Section 141 of the

1881 Act, which merely provide that if a person

committing an offence under Section 138 is a

Company, every person, who at the time when 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 guilty of the offence. It was

urged that the High Court had wrongly interpreted

the provisions of Sub-section (1) of Section 141 of

the aforesaid Act in their application to the

statements made in paragraphs 12 and 21 of the

complaint in arriving at a finding that the 7

complaint had merely presumed that the Directors

would be guilty because of holding a particular

office since law would assume so. It was submitted

that while correctly holding that to fasten

liability on a Director it has to be proved that

such Director was responsible to the Company and

was in charge of its affairs and that such fact

would have to be pleaded and proved, the High Court

had erred in holding that the pleadings in

paragraphs 12 and 21 of the complaint fell short of

sufficient averments required to be made in a

complaint under Section 138 read with Section 141

of the 1881 Act.

9. It was submitted that the decision of this

Court in S.M.S. Pharmaceuticals Ltd. vs. Neeta

Bhalla & Anr. [(2005) 8 SCC 89], did not affect

the Bank's case, since it had been stated in the

complaint in clear and unambiguous terms that the

respondents as Directors of the Company were liable

for its acts and that such an allegation could be 8

proved by leading evidence, which stage was yet to

arrive when the High Court quashed the complaint

and discharged the accused. It was submitted that

the impugned order of the High Court was liable to

be set aside and the matter was liable to be

remanded to the Trial Court for being proceeded

with from the stage when the complaint was quashed.

10. Apart from the above submissions, a further

submission was made on behalf of the Bank to the

effect that since the cheques which were issued in

favour of the Bank had been handed over by the

Respondent No.1 for collection and had been

dishonoured, the Bank had become the holder of the

cheques in due course and were, therefore, entitled

to proceed against the Respondent No.1.

11. The submissions made on behalf of the

Petitioner Bank were strongly opposed on behalf of

the respondents and it was submitted that having

regard to the decision of this Court in S.M.S.

Pharmaceuticals Ltd.'s case (supra) which was later 9

followed in N.K. Wahi vs. Shekhar Singh & Ors.

[(2007) 9 SCC 481], there was no scope to urge that

the ingredients of a complaint against the

respondents had been satisfied by the averments

made in paragraphs 12 and 21 of the complaint.

12. As far as the second limb of the submissions

made on behalf of the Bank was concerned, it was

submitted that the same was an argument of

desperation as the cheques in question had been

drawn by the Respondent No.3 on its own Bank which

had dishonoured the cheques. Except for presenting

the cheques to the Bank for collection, the

Respondent No.1 had no other role to play in the

dishonour thereof.

13. We have carefully considered the submissions

made on behalf of the respective parties and we are

unable to persuade ourselves to differ with the

judgment and order of the High Court. The judgment

in S.M.S. Pharmaceuticals Ltd.'s case (supra),

which was relied upon by the High Court, while 10

interpreting the provisions of sub-section (1) of

Section 141 of the 1881 Act, made it very clear

that unless a specific averment was made in the

complaint that at the time when the offence was

committed, the person accused was in charge of and

responsible for the conduct of the business of the

Company, the requirements of Section 141 would not

be satisfied. It was further held that while a

Managing Director or a Joint Director of the

Company would be admittedly in charge of the

Company and responsible to the Company for the

conduct of its business, the same yardstick would

not apply to a Director. The position of a

signatory to a cheque would be different in terms

of Sub-section (2) of Section 141 of the 1881 Act.

That, of course, is not the fact in this case.

14. The law as laid down in S.M.S. Pharmaceuticals

Ltd. 's case (supra) has been consistently followed

and as late as in 2007, this Court in the case of

N.K. Wahi's case (supra), while considering the 11

question of vicarious liability of a Director of a

Company, reiterated the sentiments expressed in

S.M.S. Pharmaceuticals Ltd.'s case (supra) that

merely being a Director would not make a person

liable for an offence that may have been committed

by the Company. For launching a prosecution against

the Directors of a Company under Section 138 read

with Section 141 of the 1881 Act, there had to be a

specific allegation in the complaint in regard to

the part played by them in the transaction in

question. It was also laid down that the

allegations had to be clear and unambiguous showing

that the Directors were in charge of and

responsible for the business of the Company. This

was done to discourage frivolous litigation and to

prevent abuse of the process of Court and from

embarking on a fishing expedition to try and

unearth material against the Director concerned.

15. In this case, save and except for the statement

that the Respondents, Mr. Rajiv Jain and Sarla Jain 12

and some of the other accused, were Directors of

the accused Companies and were responsible and

liable for the acts of the said Companies, no

specific allegation has been made against any of

them. The question of proving a fact which had not

been mentioned in the complaint did not, therefore,

arise in the facts of this case. This has prompted

the High Court to observe that the Bank had relied

on the mistaken presumption that as Directors,

Rajiv Jain, Sarla Jain and the other Directors were

vicariously liable for the acts of the Company.

Admittedly, except for the aforesaid statement, no

other material has been disclosed in the complaint

to make out a case against the respondents that

they had been in charge of the affairs of the

Company and were responsible for its action. The

High Court, therefore, rightly held that in the

absence of any specific charge against the

Respondents, the complaint was liable to be quashed

and the respondents were liable to be discharged. 13

16. As to the submission made on behalf of the Bank

that they were holders in due course of the four

cheques issued by the Respondent No.3 Company and

that by presenting them to the Petitioner Bank for

encashment, the Respondent No.1 Company had become

liable for dishonour thereof, has been adequately

dealt with and negated by the High Court and does

not require any further elaboration.

17. The Special Leave Petitions filed by the

Central Bank of India, therefore, fail and are

dismissed.

________________J.

(ALTAMAS KABIR)

________________J.

(CYRIAC JOSEPH) New Delhi, Dated: July 06, 2010.

14