A.K. SINGHANIAversusGUJARAT STATE FERTILIZER CO. LTD. & ANR.

                    [2013] 9 S.C.R. 1069


                    A.K. SINGHANIA                                  A
                            v.
     GUJARAT STATE FERTILIZER CO. LTD. & ANR.
      {Criminal Appeal Nos. 1692-1718 of 2013 etc.)
                     OCTOBER 17, 2013
                                                                    B
          [CHANDRAMAULI KR. PRASAD AND
                KURIAN JOSEPH, JJ.]

     NEGOTIABLE INSTRUMENTS ACT, 1881:
                                                                    c
     s. 141 rlw s. 138 - Complaint against a company, its
Chairman, Managing Directors and Directors - Petitions· by
two directors seeking to quash the proceedings against them
- Held: In case of offence by company for dishonour of
cheque, culpability of Directors has to be decided with             0
reference to s. 141 -- To bring the Directors within the mischief
of s. 138, it shall be necessary to allege that at the relevant
time they were in charge of and responsible to the conduct of
business of the Company -- It is necessary ingredient to
proceed against such Directors -- In the instant case, the          E
averments in the complaints nowhere suggest that the two
Directors concerned were incharge and responsible for
conduct of business of the company at the time when the
offence was committed - Thus, the necessary averment in the
complaints is Jacking - Therefore, prosecution of two Directors     F
concerned cannot be allowed to continue and their
prosecution in all the cases, is quashed.

    Respondent no. 1 in Crl. A. No. 1726-1732 of 2013
and the appellant in Crl. A. No. 1692-1718 of 2013 were
arraigned as accused Nos. 7 and 9, respectively in                  G
Complaint Case No. 331 of 1996 filed against accused
Nos. 1 to 13 alleging commission of offence u/s 138 of
the Negotiable Instruments Act, 1881. Several other
similar complaints were also filed by Gujarat State
                          1069                                      H
    1070    SUPREME COURT REPORTS                 [2013] 9 S.C.R.


A Fertilizer Company against Esslon Synthetics Ltd., its
  Chairman, Managing Directors and other Directors
  including the said accused Nos. 7 and 9. The Magistrate
  took cognizance of the offence and issued process to the
  accused persons. Accused Nos. 7 and 9 in Complaint
B Case No. 331 of 1996 filed petitions u/s 482 Cr.P.C. before
  the High Court seeking to quash the proceedings against
  them. The High Court allowed the petitions of accused
  No. 7, but rejected those of accused No. 9.

        Disposing of the appeals, the Court
c
         HELD: 1.1 In the case of offence by company for
    dishonour of cheque, culpability of the Directors has to
    be decided with reference to s. 141 of the Act. To bring
    the Directors within the mischief of s. 138 of the Act, it shall
D   be necessary to allege that at the time the offence was
    committed, they were in charge of and responsible to the
    conduct of the business of the Company. It is necessary
    ingredient which would be sufficient to proceed against
    such Directors. If reading of the complaint shows and
E   substance of accusation discloses necessary averments,
    that would be sufficient to proceed against such of the
    Directors and no particular form is necessary. However,
    it may not be necessary to allege and prove that, in fact,
    such of the Directors have any specific role in respect of
F   the transaction leading to issuance of cheque. Section
    141 of the Act makes the Directors in charge and
    responsible to Company "for the conduct of the
    business of the Company" within the mischief of s. 138
    of the Act and not particular business for which the
G   cheque was issued. [para 17-18] [1078-F; 1080-A-D]

        S. M. S. Pharmaceuticals Ltd. v. Neeta Bhalla, 2005 (3)
    Suppl. SCR 371 = (2005) 8 SCC 89; National Small
    Industries Corpn. Ltd. v. Harmeet Singh Paintal 2010 (2) SCR
    805 = (2010) 3 SCC 330; Harshendra Kumar D. v. Rebatilata
H
    A.K. SINGHANIA v. GUJARAT STATE FERTILIZER 1071
                      CO. LTD.

Koley, 2011 (2) SCR 670 = (2011) 3 sec 351; N.                 A
Rangachari v. Bharat Sanchar Nigam Ltd., 2007 (5) SCR 329
=(2007) 5 SCC 108; and K.K. Ahuja v. V.K. Vora, (2009) 10
sec 48 - relied on.
     1.2 On facts, according to the complainant itself, it     B
was accused Nos. 1 to 5 who were taking decisions; and
the allegation was that in taking the decisions they used
to consult accused nos. 7 and 9 also. From the
allegations made in the complaint, it cannot be inferred
that there is any averment that these two accused were         C
in-charge of and responsible for the conduct of the
business of the company at the time the offence was
committed. Therefore, there is no essential averment in
the complaints. In this view of the matter, prosecution of
accused nos. 7 and 9 cannot be allowed to continue.
Accordingly, the order of the High Court quashing the          D
prosecution of the accused No. 7 is not fit to be interfered
with. For the same reason the order passed by the High
Court declining the prayer of accused no.9 for quashing
of the prosecution cannot be sustained, and, as such, is
set aside. [para 15, 16 and 22] [1077-E-H; 1078-A; 1082-       E
E-F]
                    Case Law Reference:
     2005 (3) Suppl. SCR 371 relied on             para 19
                                                               F
     2010 (2) SCR 805          relied on           para 20
     2011 (2) SCR 670          relied on           para 21
     2007 (5) SCR 329          relied on           para 21
     2009 (1 O) sec 48         relied on           para 21     G

    CRIMINAL APPELLATE JURISDICTION: Criminal Appeal
No. 1692-1718 of 2013.

     From the Judgment and Order dated 07.02.2012 of the       H
    1072     SUPREME COURT REPORTS                 [2013] 9 S.C.R.


A   High Court of Gujarat at Ahmedabad in Crl. Misc. Nos. 1566,
    1567, 1568, 1569, 1570, 1571 and 1572 of 2012.

                                 WITH

    Crl. A. Nos. 1719-1725, 1726-1732 & 1733-1759 of 2013.
B
        Ranjit Kumar, Kavita Wadia, Shashank Tripathi, Khaitan
    & Co. for the Appellant.

        Jayant Bhushan, Ashok Kr. Shrivastava, Nitish Massey,
C Sanjeev K. Kapoor (for Khaitan & Co.), Shubhada Deshpande
  (for Hemantika Wahi), Kunal Verma, Vijeta Ohri, Arpita Seth
  for the Respondents.

        The Judgment of the Court was delivered by

D       CHANDRAMAULI KR. PRASAD, J.               1. 'In all these
    special leave petitions common question of law and facts arise
    and, therefore, they have been heard together and are being
    disposed of by this common judgment.

        2. Leave granted.
E
         3. In all these cases we are concerned with accused A.K.
    Singhania and Vikram Prakash. Several complaints were filed
    by Gujarat State Fertilizer Company against Esslon Synthetics
    Ltd., its Chairman, Managing Director and other Directors
F   including aforesaid A.K. Singhania and Vikram Prakash
    alleging commission of an offence under Section 138 of the
    Negotiable Instruments Act, hereinafter referred to as 'the Act'.

       4. In Complaint Case No. 331 of 1996 the allegations
G which are relevant for the decision of these appeals read as
  follows:

              "3. The accused No. 14 is a Limited Company
        registered under the Companies Act, 1956 and are doing
        business of chemicals, synthetics etc. The accused No. 1
H       is Managing Director of accused company No. 14 and
   A.K. SINGHANIA v. GUJARAT STATE FERTILIZER 1073
     CO. LTD. [CHANDRAMAULI KR. PRASAD, J.]
      accused No. 2 is Deputy Managing Director, accused No.       A
      3 is Chairman, accused No. 4 is Whole Time Director,
      accused No. 5 is Finance Director, accused No. 6 to 12
      are the Directors and the accused No. 13 was Senior
      Manager (Finance) of the accused company No. 14
      Esslon Synthetics Ltd.                                       B

             4. All the business and financial affairs of the
      accused company No. 14 are decided, organized,
      administered by accused No. 1 being Managing Director
      and accused No. 2 being Deputy Managing Director,            C
      accused No. 3 Chairman, accused No. 4 Whole Time
      Director, accused No. 5 Finance Director with consultation
      of other Directors from accused Nos. 6 to 12 and accused
      No. 13 was Sr. Manager (Finance) of accused company
      No. 14. So accused Nos. 1 to 12 and accused No. 13 are
      also responsible for all the transactions and business       D
      affairs done on behalf of accused Company No. 14 and
      are responsible for all the financial affairs and
      administration of accused Company No. 14."

     5. A.K. Singhania is the accused No. 7 and Vikram             E
 Prakash is accused No. 9 in this complaint.

       6. In Complaint Case No. 1293 of 1996, the allegations
~ with which we are concerned in these appeals read as follows:

      "4. All the business and financial affairs of the accused    F
      company No. 1 are decided, organized, administered by
      the accused No. 2 being Managing Director and accused
      No. 3 being Managing Director, accused No. 4 Chairman,
      accused No. 5 Whole Time Director, accused No. 6
      Finance Director with consultation of other Directors from   G
      accused Nos. 7 to 13 and accused No. 14 was Sr.
      Manager (Finance) of accused No. 1. At the time the
      offence was committed, they were incharge of and were
      responsible to the company for the conduct of the business
      of the accused company. Therefore, they are responsible      H
    1074    SUPREME COURT REPORTS                    [2013] 9 S.C.R.

A       for day to day affairs and all the transactions and business
        done on behalf of the accused Company No. 1 and they
        are also responsible for all the financial affairs and
        administration of accused company No. 1."

        7. A.K. Singhania and Vikram Prakash have been arrayed
8
    as accused Nos. 8 and 10 in this complaint and in all other
    complaints, the allegations against A.K. Singhania are identical
    to what have been alleged in the Complaint Case No. 331 of
    1996.
C       8. Taking into account the allegations made in the
    respective complaints, the learned Magistrate took cognizance
    of the offence, issued process to the accused aforesaid
    besides other accused to face trial for commission of the
    offence under Section 138 of the Act.
D
       9. Vikram Prakash, aggrieved by the order issuing
  summons to face trial under Section 138 of the Act in different
  complaints, filed applications under Section 482 of the Code
  of Criminal Procedure for quashing the order taking cognizance
E and issuing process. The applications filed by said Vikram
  Prakash were registered as Criminal Miscellaneous
  Application Nos. 13393-13399 of 2007. The High Court by its
  common order dated January 20, 2012 allowed all the
  applications and quashed his prosecution. While doing so, the
F High Court held as follows:

               "7 ............. It is to be noted that as such there are
        general allegations and averments against the applicant
        in the complaints, however there are no specific allegations
        and averments in the complaint against the applicant with
G       respect to transaction for which the cheques were issued
        by the accused no. 14 company. Under the circumstance,
        on the ground that applicant was non Executive Director
        of the Company on the board of the company, which is not
        disputed by the complainant, the applicant cannot be
H       prosecuted for the offence under Sections 138 r/w 141 of
  AK. SINGHANIA v. GUJARAT STATE FERTILIZER 1075
   CO. LTD. [CHANDRAMAULI KR. PRASAD, J.]
    the Negotiable Instruments Act and cannot be held                A
    vicariously liable for the offence alleged to have been
    committed by the accused no. 14 company. Under the
    circumstance, this Court is of opinion that this is a fit case
    to exercise the powers under Section 482 of the Code of
    Criminal Procedure and to quash and set aside the                8
    impugned complaint/criminal case qua applicant-original
    accused no. 9 ...... "

      10. It is this common order which has been assailed by
the Gujarat State Fertilizer Company Ltd. in the special leave
petitions filed by it.                                               C

     11. AK. Singhania also, aggrieved by the order issuing
process under Section 138 of the Act, filed separate
applications for quashing the entire prosecution including the
aforesaid order under Section 482 of the Code of Criminal            D
Procedure. All the applications filed by A.K. Singhania were
taken together by the High Court for consideration and by the
impugned order the applications filed by him have been
dismissed. While doing so, the High Court observed as follows:

           "9. As the paragraphs of the complaint reproduced         E
    in earlier part of decision specifically para 4 and
    subsequent paragraphs would reveal that the applicant in
    the capacity of Director was responsible for business
    affairs and he was in-charge of the Company. Not only that
    but nowhere· it can be said that the applicant was non-          F
    Executive Director and even if it is so the said argument
    is in realm of defence to be decided by Court trying the
    case under the Negotiable Instruments Act. Since sufficient
    averments attracting of Section 138 of Negotiable
    Instrument Act are the foundation of the complaint and it        G
    is further averred that cheques were issued with
    mischievous, dishonest intention, knowingly and willingly to
    cheat the complainant company. Arguments canvassed by
    learned advocate for the applicant do not require any
    further deliberation in exercise of powers under Section         H
    1076     SUPREME COURT REPORTS                 [2013] 9 S.C.R.


A       482 of the Code since quashing the complaint would not
        secure end of justice but would result into miscarriage of
        justice ........... "

         12. AK. Singhania, aggrieved by the aforesaid common
    order, has preferred these special leave petitions.
B
         13. Leave granted.

           14. We have heard Mr.Ranjit Kumar, learned Senior
    Counsel on behalf of the accused A.K. Singhania and
C   Mr.Ashok Kr. Srivastava, learned Senior Counsel on behalf of
    Vikram Prakash whereas the complainant, Gujarat State
    Fertilizer Company Ltd. is represented by Mr. Jayant Bhushan,
    learned Senior Counsel. Mr. Ranjit Kumar appearing on behalf
    of the accused submits that necessary averments that at the
D   time the offence was committed, the accused were in-charge
    of and responsible for the conduct of the business of the
    company have not been averred, which is sine qua non for
    proceeding against the Directors of the company. He has
    drawn our attention to the averments made in the complaints,
    which we have reproduced in the preceding paragraphs of this
E   judgment and submits that mere assertion that these accused
    persons were the Directors of the company is not sufficient to
    make them liable under Section 141 of the Act. Mr. Jayant
    Bhushan however, submits that there is clear averment in the
    complaint that these accused persons were the Directors of the
F   company and, in fact, in-charge of and responsible for the
    conduct of the business of the company and, hence, they were
    rightly summoned to face the trial. He points out that the
    judgment and order of the High Court quashing the prosecution
    of accused Vikram Prakash is under challenge in this batch of
G   appeals and accused AK. Singhania cannot take benefit of the
    said order and the fate of both the accused shall depend upon
    the decision in all these appeals. Mr. Ranjit Kumar submits that
    on same set of facts when the prosecution of the accused
    Vikram Prakash has been quashed, there does not seem any
H   justification to decline the prayer of the accused AK. Singhania.
  A.K. SINGHANIA v. GUJARAT STATE FERTILIZER 1077
    CO. LTD. [CHANDRAMAULI KR. PRASAD, J.]

      15. In view of rival submissions, we proc~ed to consider       A
the exact allegations made against the accused A.K. Singhania
and accused Vikram Prakash. It is not in dispute that allegations
against both the accused in different complaints are one and
the same. In Complaint Case No. 331 of 1996, the allegation
is that "all business and financial affairs of the accused           B
company are decided, organized, administered by Accused
Nos. 1 to 5". It has further been alleged that Accused Nos. 1 to
5 do so with consultation of other Directors namely, Accused
Nos. 6 to 12. In view of aforesaid, according to the complainant,
accused Nos. 1 to 13 are also responsible for all the                c
transactions and business affairs, financial affairs and
administration done on behalf of the accused company. It is
relevant here to state that A.K. Singhania and Vikram Prakash
are accused Nos. 7 and 9 in this complaint. The averments
made in the complaint nowhere suggest that these two                 D
accused, at the time the offence was committed, were in-
charge of and responsible for the conduct of the business of
the company. According to the complainant itself, it was
accused Nos. 1 to 5 who were taking decisions and the
allegation that in taking the decisions they used to consult these   E
accused also will not mean that these two accused were at the
time the offence was committed, were in~charge of and
responsible for the conduct of business of the company. In
complaint Case No. 1293 of 1996 and all other complaints with
which we are concerned in the present appeals the allegation
is that "all business and financial affairs of the accused           F
company No.1, are decided, organized, administered by
accused Nos. 2 to 6 and in consultation of other directors i.e.
from accused Nos. 7 to 13". It has further been averred that at
the time the offence was committed "they were in-charge and
responsible to the company for the conduct of the business"          G
and, therefore, "they are responsible for day to day affairs and
transaction, business and all financial affairs of the accused
company." Mr. Ranjit Kumar submits that the aforesaid
averments are not sufficient and from that it cannot be inferred
that accused A.K. Singhania and accused Vikram Prakash               H
    1078     SUPREME COURT REPORTS                 [2013) 9 S.C.R.


A have been alleged to be in-charge and responsible for the
  conduct of the business of the company at the time the offence
  was committed. He points out that A.K. Singhania is accused
  No. 8 whereas accused Vikram Prakash is accused No. 10 in
  these complaints. Mr. Jayant Bhushan, however, joins issue and
B submits that the substance of the accusation clearly indicates
  that the two accused were in-charge and responsible for the
  conduct of the business of the company at the time of the
  offence.

        16. We have perused the complaints and, in fact, the
C relevant portions of the allegations have been reproduced in
  the foregoing paragraphs of the judgment. From that it is difficult
  to infer that there is any averment that these two accused were
  in-charge of and responsible for the conduct of the business
  of the company at the time the offence was committed. The
D allegations in the complaints in sum and substance mean that
  business and financial affairs of the company used to be
  decided, organized and administered by accused Nos. 2 to 6
  and while doing so, other Directors including the two accused
  herein were consulted. The inference drawn by the complainant
E on that basis that these two accused, therefore, are in-charge
  and responsible to the company for the conduct of its business,
  is absolutely misconceived. We are, therefore, of the opinion
  that essential averment in the complaints is lacking.

F        17. In case of offence by company for dishonour of cheque,
    the culpability of the Directors has to be decided with reference
    to Section 141 of the Act, same reads as follows:

        "141. Offences by companies.-(1} If the person
        committing an offence under section 138 is a company,
G       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
H       accordingly:
  AK. SINGHANIA v. GUJARAT STATE FERTILIZER 1079
   CO. LTD. [CHANDRAMAULI KR. PRASAD, J.]

     18. Provided that nothing contained in this sub-section shall      A
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:
                                                                        B
            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            C
     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               D
     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         E
     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;        F
            and

             (b) "director'', in relation to a firm, means a partner
             in the firm."

     19. From a plain reading of the aforesaid provision it is          G
evident that every person who at the time the offence was
committed is in charge of and responsible to the Company shall
be deemed to be guilty of the offence under Section 138 of the
Act. In the face of it, will it be necessary to specifically state in
the complaint that the person accused was in charge of and              H
    1080     SUPREME COURT REPORTS                 [2013] 9 S.C.R.


A responsible for the conduct of the business of the Company?
  In our opinion, in the case of offence by Company, to bring its
  Directors within the mischief of Section 138 of the Act, it shall
  be necessary to allege that they were in charge of and
  responsible to the conduct of the business of the Company. It
B is necessary ingredient which would be sufficient to proceed
  against such Directors. However, we may add that as no
  particular form is prescribed, it may not be necessary to
  reproduce the words of the section. If reading of the complaint
  shows and substance of accusation discloses necessary
c averments, that would be sufficient to proceed against such of
  the Directors and no particular form is necessary. However, it
  may not be necessary to allege and prove that, in fact, such of
  the Directors have any specific role in respect of the transaction
  leading to issuance of cheque. Section 141 of the Act makes
  the Directors in charge and responsible to Company "for the
0
  conduct of the business of the Company" within the mischief
  of Section 138 of the Act and not particular business for which
  the cheque was issued. We cannot read more than what has
  been mandated in Section 141 of the Act.

E      20. A large number of authorities of this Court have been
  cited by the counsel representing the party to bring home their
  point. We deem it inexpedient to refer to all of them. Suffice it
  to say that this question has been answered eloquently by a
  three-Judge Bench decision of this Court in the case of S.M.S.
F Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89, in
  the following words:

        "19. In view of the above discussion, our answers to the
        questions posed in the reference are as under:
G       (a) It is necessary to specifically aver in a complaint under
        Section 141 that at the time the offence was committed,
        the person accused was in-charge of, and responsible for
        the conduct of business of the company. This averment is
        an essential requirement of Section 141 and has to be
H       made in a complaint. Without this averment being made
  A.K. SINGHANIA v. GUJARAT STATE FERTILIZER 1081
    CO. LTD. [CHANDRAMAULI KR. PRASAD, J.]

    in a complaint, the requirements of Section 141 cannot be        A
    said to be satisfied."
     21. This Court in the case of National Small Industries
Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330, after
reviewing all its earlier judgments summarized the legal position
as follows:                                                          B

    "39. From the above discussion, the following principles
    emerge:
          (i) The primary responsibility is on the complainant
    to make specific averments as are required under the law         C
    in the complaint so as to make the accused vicariously
    liable. For fastening the criminal liability, there is no
    presumption that every Director knows about the
    transaction.
           (ii) Section 141 does not make all the Directors liable   D
    for the offence. The criminal liability can be fastened only
    on those who, at the time of the commission of the offence,
    were in charge of and were responsible for the conduct of
    the business of the company.
                                                                     E
           (iii) Vicarious liability can be inferred against a
    company registered or incorporated under the Companies
    Act, 1956 only if the requisite statements, which are
    required to be averred in the complaint/petition, are made
    so as to make the accused therein vicariously liable for
                                                                     F
    offence committed by the company along with averments
    in the petition containing that the accused were in charge
    of and responsible for the business of the company and
    by virtue of their position they are liable to be proceeded
    with.
                                                                     G
          (iv) Vicarious liability on the part of a person must
    be pleaded and proved and not inferred.
          (v) If the accused is a Managing Director or a Joint
    Managing Director then it is not necessary to make
    specific averment in the complaint and by virtue of their        H
    1082     SUPREME COURT REPORTS               [2013] 9 S.C.R.


A        position they are liable to be proceeded with.
              (vi) If the accused is a Director or an officer of a
         company who signed the cheques on behalf of the
         company then also it is not necessary to make specific
         averment in the complaint.
B
               (vii) The person sought to be made liable should be
         in charge of and responsible for the conduct of the
         business of the company at the relevant time. This has to
         be averred as a fact as there is no deemed liability of a
         Director in such cases."
c
       In Harshendra Kumar D. v. Rebatilata Koley, (2011) 3
  sec 351, after referring to its earlier decisions in S.M.S.
  Pharmaceuticals Ltd. (supra), National Small Industries
  Corpn. Ltd. (supra), N. Rangachari v. Bharat Sanchar Nigam
D Ltd., (2007) 5 SCC 108 and K.K. Ahuja v. V.K. Vora, (2009)
  10 sec 48, this Court reiterated the same view.
       22. We have found on fact that there is no averment that
  the two accused herein were in charge of and responsible for
  the conduct of the business of the company at the time the
E offence was committed. Hence, there is no essential averment
  in the complaints. In view of what we have observed above, the
  prosecution of accused A.K. Singhania and accused Vikram
  Prakash cannot be allowed to continue. Accordingly, the order
  of the High Court quashing the prosecution of the accused
F Vikram Prakash is not fit to be interfered with. For the same
  reason the order passed by the High Court declining the prayer
  of A.K. Singhania for quashing of the prosecution cannot be
  sustained and the appeals preferred by him deserve to be
  allowed.
G       23. In the result, we dismiss the appeals preferred by the
    complainant Gujarat State Fertilizers Company Ltd. and allow
    the appeals preferred by A.K. Singhania and quash his
    prosecution in all these cases.

H R.P.                                      Appeals disposed of.