Holding

A magistrate cannot recall an order issuing summons as he lacks jurisdiction, and the complaint satisfied the requirements of S.141, making the Chairman and Managing Director liable.

Summary

Everest Advertising Pvt. Ltd. filed a complaint under the Negotiable Instruments Act against Dalmia Industries Ltd. and its Chairman and Managing Director for dishonour of post‑dated cheques. A Metropolitan Magistrate issued summons against the respondents under CrPC s.204, but later recalled the order for the Chairman and Managing Director. The Delhi High Court upheld the recall, holding that the complaint did not satisfy the requirements of S.141 of the Negotiable Instruments Act. On appeal, the Supreme Court held that a magistrate has no jurisdiction to recall an order of issuance of summons and that the ingredients of S.141 were in fact satisfied because the Chairman and Managing Director participated in negotiations concerning the cheques. Consequently, the recall was invalid and the summons should stand. The appeal was allowed, setting aside the High Court’s decision.

Issues considered

The magistrate’s jurisdiction to recall an order issuing summons under CrPC s.204.
Whether the complaint satisfied the specific averments required by S.141 of the Negotiable Instruments Act to hold the Chairman and Managing Director vicariously liable.
Whether participation in negotiations suffices to meet the "in charge of and responsible for" requirement of S.141.

Legislation cited

Code of Criminal Procedure, 1973s. 200, s. 202, s. 203, s. 204
Companies Act, 1956
Negotiable Instruments Act, 1881s. 141

Subjects

Negotiable Instruments ActSection 141vicarious liabilitymagistrate jurisdictionrecall of summonscriminal procedurecorporate liabilitycheque dishonour

Judgment

EVEREST ADVERTISING PVT. LTD. A
v.
STATE, GOVT. OF NCT OF DELHI AND ORS.

APRIL I 0, 2007

[S.B. SINHA AND MARKANDEY KA TJU, JJ.] B

Code of Criminal Procedure, 1973-Recal/ing of erroneous order of
issuance of summons-Jurisdiction of Magistrate-Held: Magistrate has no
jurisdiction to recall such order-Magistrate does not have inherent C
jurisdiction.

Negotiable Instruments Act, 1881-s.141-Dishonour of cheque issued
by Company---Gomp/aint against the Company as well as Chairman and
Managing Director thereof-Payment of the amount through cheque made
after meetings in which the Chairman and Managing Director participated- D
They also participated in negotiations as a result offailure to niake payment-
Jssuance of summons to the Chairman & Managing Director-Recalled on
the ground that complaint did not satisfy requirements of s.141-Held:
Recalling of order issuing summons not correct as in the facts of the case
ingredient of the provisions of s.141 stand satisfied-Code of Criminal
Procedure, 1973-s.204. E
Appellant-Company filed a complaint under Negotiable Instruments Act
against a company (accused company) and its Chairman and Managing
Director (respondent nos. 2 and 3 respectively), as the cheques issued by the
Company were dishonoured. The Magistrate issued summons against the
accused persons in terms of s.204 Cr.PC. On application, Magistrate recalled F
order issuing summons against respondent nos. 2 and 3. High Court
confirmed the order of Magistrate. Hence the present appeal.

Allowing the appeal, the Court

HELD: 1. Summons were issued by the Magistrate by way of an order. G
He recalled the said order. He did not have any jurisdiction in that behalf. A
Magistrate does not have and, thus, cannot exercise any inherent jurisdiction.
[Para 10) [1059-E-F)

1055 H
1056 SUPREME COURT REPORTS (2007] 4 S.C.R.

A Ada/at Prasad v. Roop/al Jindal and Ors., (2004) 7 SCC 338;
Subramanium Sethuraman v. State of Maharashtra and Anr., JT (2004) 8 SC
220 and N. K. Sharma v. Abhimanyu, [2005) 13 SCC 213, reljed on.

2. Not only cheques were issued having regard to the huge amount
payable by Accused No. 6 to the Company but also as a result of fall out of
B non-payment thereof, negotiations were held between the parties wherein
Respondent Nos. 2 and 3 took part, and, thus, there cannot be any doubt that
the ingredients of the provisions of Section 141 of Negotiable Instruments
Act stand satisfied. [Para 25) (1065-G)

C S.MS. Pharmaceuticals Ltd v. Neeta Bhalla and Anr., [2005) 8 SC 89
and Saro) Kumar Poddar v. State (NCT of Delhi) and Anr., (2007) 2 SCALE
36, relied on.

Pepsi Foods Ltd And Anr. v. Special Judicial Magistrate and Ors.,
(1998) 5 sec 749, distinguished.
D S.MS. Pharmaceuticals Ltd v. Neeta Bhalla and Anr., (2007) 3 SCALE
245 and N.K Wahi v. Shekhar Singh and Ors., [2007) 4 SCALE 188, referred
to.

CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. 520 of
E 2001.

From the Judgment and Order dated 13.07.2005 of the High Court of
Delhi in Criminal M.C. Nos. 3690 and 3691 of2001.

Aloke Kumar Sengupta, Suraj Prakash and Dr. Kailash Chand for the
F Appellant.

K.T.S. Tulsi, Aman Leekha, Umesh Kumar Khaitan, Ashu Kansai, Samir
Ali Khan and Anil Katiyar for the Respondent.

The Judgment of the Court was delivered by
G S.B. SINHA, J. l. Leave granted.

2. This appeal is directed against a judgment and order dated 13.07.2005 ·
passed by a learned Single Judge of the Delhi High Court in Criminal M.C.
Nos. 3690 and 3691 of2001.
H
EVEREST ADVERTISING PVT.LID. 1•. STATE,GOVT.OFNCTOFDELlil[S.B.SINHA,J.] 1057
'
)
3. Respondent Nos. 2 and 3 herein are Chainnan and Managing Director A
of a Company known as 'Dalmia Industries Ltd.', (The Company) which is
registered and incorporated under the Companies Act, 1956. It was arrayed
as Accused No. 6 in the complaint petition.

4. The Company is engaged in the business of advertising and publicity.
By an agreement dated 17.07.1995, the Company as also Accused No. 6 B
entered into an agreement in tenns whereof the Company was appointed as
advertising and publicity agents of Accused No. 6 in respect of their various
products on the tenns and conditions contain~d therein. Allegedly, the
Company carried out various jobs and releases between the period July, 1997
and December, 1997. It raised bills to the extent of Rs. 2,59,21,053.37 for the C
work executed by it. On 14.11.1997, Accused No. 6 issued various post dated
cheques allegedly towards part payment of the said dues which on presentation
to the bank on 6.04.1998 admittedly were dishonoured. Notices were served
on the Respondents Nos. 2 and 3 on 18.04.1998.

5. Appellant-Company (Company) filed two complaint petitions against D
~ the accused persons including Respondent Nos. 2 and 3 herein alleging:

"4. That accused No. 1to5 are the Chainnan, Vice Chainnan, Director
(Technical), Executive Director, and Senior General Manager (Finance)
of the accused Company respectively and are Incharge and responsible
to the accused company for the conduct of the business of the E
Company and are thus liable for making the payment.

*** *** ***
9.That the complainant company presented these cheques on 26.3.1998
for encashment through their bankers Central Bank of India, Ram Tilak F
Nagar Branch, New Delhi, which have been returned back to the
complainant company on 28.3.1998 by the Banker with the endorsement
dated 27.3 .1998 of the State Bank of Bikaner and Jaipur D 72 Connaught
Circus, New Delhi to the bank of the accused company "payment
stopped by the drawer". One of the cheque bearing No. 588184 dated
6.11.1997 drawn on the State Bank of Bikaner and Jaipur, D-72 G
Connaught Circus, New Delhi returned with the endorsement of the
accused Bank "exceeds arrangement". This Bank Memo along with
the cheque was sent by the Banker of the complainant company vide
Memo dated 28.3.1998. Subsequently, the accused gave pay order in
lieu of the cheque. H
1058 SUPREME COURT REPORTS [2007] 4 S.C.R.

A *** *** ***
11. That these post dated cheques as per Annexure 'B' were given
after the accused No. 1 to 5 had various meetings with the complainant ·
company and it is only after persuasion that the complainant company
owes money to various Media Concession is and unless they are
B being paid, the releases of the accused company shall not be entertained
by the Media Concessionais.

*** *** ***
13. That accused No. l to 5 are Incharge and responsible Jor the
·C conduct of the business and the offence is committed by the accused
company with the active connivance of the accused No. 1 to 5."

6. On the said complaint petitions and upon recording the initial
deposition of the complainant and its witnesses under Section 200 of the
Code of Criminal Procedure, by an order dated 24.07.1999, processes were
D directed to be issued by the learned Magistrate against the accused persons
in terms of Section 204 of the Code of Criminal Procedure.

7. An application was filed by them for recalling the processes so
issued. By an order dated 11.07.2001, the learned Magistrate recalled the said
order dated 24.07.1999 issuing summons against Respondent Nos. 2 and 3.
E Criminal Miscellaneous applications were filed by the Company thereagainst.
before the High Court. By reason of the impugned judgment, the said
applications have been dismissed by the High Court holding:
......
"13. Coming back to the facts of the two cases before me, I find that
the allegations in the complaint are far frdm sufficient to summon
F respondents 2 and 3 for the offence of the company - accused No.6.
Apart from making an omnibus allegation that all the accused were
responsible for the conduct of the business of the company and that
all of them connived in the offence, there is no specific averment as
to how any of the accused l and 2 (respondents 2 and 3 herein) were
actually involved in the conduct of the business of the company
G
relating to the transaction in question or how and on what basis it can
be said that it was with the active connivance of these two accused
that the offence was committed by the company. In my opinion, the ·
petitioners could not have been summoned on the basis· of the
allegations made by the complainant. The Metropolitan Magistrate
H has not committed any mistake in declining to summon the two
EVEREST ADVERTISING PVT.I,TD.•. STATE,GOVT.OFNCTOFDELlil[S.B.SINHA,J.) } 059

accused. The petitions have no merit and, therefore, dismissed." A
8. Mr. Aloke Kumar Sengupta, learned Senior Counsel appearing on
behalf of the Company, would submit that having regard to the allegations
made in the complaint petition, the High Court committed a serious illegality
in passing the impugned judgment. The learned counsel submitted that the
learned Magistrate had no jurisdiction to recall its order whereby the accused B
persons were summoned.
1
9. Mr. K.T.S. Tulsi, learned senior counsel appearing on behalf of
Respondents Nos. 2 and 3, on the' other hand, would submit that complaint
petition contained mechanical reproduction of the wordings of a section and,
thus, without making any allegation that Respondent Nos. 2 and 3 had any C
role to play in the matter of issuance of cheque or the dishonour thereof, no
order issuing summons as against the said Respondents could have been
passed. A distinction, according to the learned counsel, must be made between
a Chairman of a Company and a Managing Director or a Deputy Managing
Director thereof inasmuch whereas aManaging Director or a Deputy Managing D
Director is presumed to be involved in the day to day affairs of the Company,
the Chairman of a Company may not even have any knowledge in relation
thereto. Provisions of the Negotiable Instruments Act, it was submitted, are
being misused and this Court, therefore, should strike a balance between the
interest of a complainant and interest of an accused who is alleged to be
vicariously liable for the offences committed by the Company. E
IO. Summons were issued by the learned Magistrate by reason of an
order dated 24.07.1999. He recalled the said order. He did not have any
jurisdiction in that behalf. A Magistrate does not have and, thus, cannot
exercise any inherent jurisdiction.
F
l l. In Ada/at Prasad v. Roop/al Jindal and Ors., [2004] 7 SCC 338, a
3-Judge Bench of this Court while overruling an earlier decision of this Court
in KK Mathew v. State ofKera/a and Anr., [ 1992] 1 SCC 217] stated the law .
thus :

"14. But after taking cognizance of the complaint and examining the G
complainant and the witnesses if he is satisfied that there is sufficient
ground to proceed with the complaint he. can issue process by way
of summons under Section 204 of the Code. Therefore, what is necessary
or a condition precedent for issuing process under Section 204 is the
satisfaction of the Magistrate either by examination of the complainant H
1060 SUPREME COURT REPORTS (2007) 4 S.C.R.

A and the witnesses or by the inquiry contemplated under Section 202 ·
that there is sufficient ground for proceeding with the complaint
hence issue the process under Section 204 of the Code. In none of
these stages the Code has provided for hearing the summoned accused,
for obvious reasons because this is only a prelimfo.ary stage and the
stage of hearing of the accused would only arise at a subsequent
B stage provided for in the latter provision in the Code. It is true as held
by this Court in Mathew case 1 that before issuance of summons the
Magistrate should be satisfied that there is sufficient ground for
proceeding with the complaint but that satisfaction is to be arrived at
by the inquiry conducted by him as contemplated under Sections 200
c and 202, and the only stage of dismissal of the complaint arises under
Section 203 of the Code at which stage the accused has no role to
play, therefore, the question of the accused on receipt of summons
approaching the court and making an application for dismissal of the
complaint under Section 203 of the Code on a reconsideration of the
material available on record is imp~rmissible because by then Section
D 203 is already over and the Magistrate has proceeded further to
Section 204 stage.

*** *** ***
16. Therefore, in our opinion the observation of this Court in the case
E of Mathew 1 that for recalling an erroneous order of issuance of .
process, no specific provision of law is required, would run counter
to the scheme of the Code which has not provided for review and
prohibits interference at interlocutory stages. Therefore, we are of the
opinion, that the view of this Court in Mathew easel that no specific
provision is required for recalling an erroneous order, amounting to
F one without jurisdiction, does not lay down the correct law."

12. The said ratio has been reiterated by another 3-Judge Bench of this
Court in Subramanium Sethuraman v. State of Maharashtra and Anr., JT
[2004] 8 SC 220, and NK. Sharma v. Abhimanyu, [2005]13 SCC 213.
G 13. Unfortunately, this aspect of the matter was not considered by the
High Court despite the aforementioned binding precedents. The High Court,
however, for all intent and purport upheld the order passed by the learned
Magistrate on the premise that allegations made in the complaint petition do
not satisfy the requirements of Section 141 of the Negotiable Instruments Act.
H
_.......

EVERESTADVERTISINGPVT.LID.v.STAIB,GOVT.OFNCTOFDEUII[S.B.SINHA,J.) 1061
14. The said provision reads thus : A
"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 deemed to be guilty of the offence and shall B
"'( be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall render any
person liable to punishment ifhe proves that the offence was committed
without his knowledge, or that he had exercised all due diligence to
prevent the commission of such offence: c
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 Sate Government,
as the case may be, he shall not be liable for prosecution under this D
-.,
.. Chapter.

(2) Notwithstanding anything contained in sub-section-(1), where
any offence under this Act has been committed by a company and
it is pr-0ved that the offence has been committed with the consent or
connivance of, or is attributable to, any neglect on the art of, any E
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,- F

(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."
G
15. As the contentions of the parties are covered by a few decisions
of this Court, we may at the outset notice the law operating in the field.

16. The applicability and/or extent of Section 141 of the Act was referred
to and considered by a 3-Judge Bench of this Court,in S.MS. Pharmaceuticals
Ltd v. Neeta Bhalla and Anr., [2005] 8 SCC 89: [2005] 7 SCALE 397. H
1062 SUPREME COURT REPORTS [2007] 4 S.C.R.

A 17. The questions so referred read as under :

lt "(a) whether for.purposes of Section 141 of the Negotiable Instruments
rn Act, 1881, it is sufficient if the substance of the allegation read as a
•whole fulfill the requirements of the said section and it is not necessary
to specifically state in the complaint that the persons accused was in
B charge of, or responsible for, the conduct of the business of the
company. . ...

(b) whether a director of a company would be deemed to be in charge
of, and responsible to, the company for conduct of the business of
the company and, therefore, deemed to be guilty of the offence unless
c he proves to the contrary.

(c) even if it is held that specific averments are necessary, whether in
the absence of such averments the signatory of the cheque and or the
Managing Directors of Joint Managing Director who admittedly would
be in charge of the company and responsible to the company for
D conduct of its business could be proceeded against."

18. They were answered in the following terms :

".19. In view of the above discussion, our answers to the questions
posed in the reference are as under:
E
(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 ess.ential requirement of Section 141
and has to be made in a complaint. Without this averment being made
F in a complaint, the requirements of Section 141 cannot be said to be
satisfied.

(b) The answer to the question posed in sub-para (b) has to be in the
negative. Merely being a director of a company is not sufficient to
make the person liable under Section 141 of the Act. A director in a
G company cannot be deemed to be in charge of and responsible to the
company for the conduct of its business. The requirement of Section
141 is that 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
H deemed liability of' a director in such cases.
I

J

- EVEREST ADVERTISING PVT.LTD.1•. STATE,GOVT.OFNCTOFDELHI(S.B.SINHA,J.) 1063

(c) The answer to Question (c) has to be in the affirmative. The A
question notes that the managing director or joint managing director
would be admittedly in charge of the company and responsible to the
company for the conduct of its business. When that is so, holders of
such positions in a company become liable under Section 141 of the
Act. By virtue of the office they hold as managing director or joint B
managing director, these persons are in charge of and responsible for
the conduct of business of the company. Therefore, they get covered
under Section 141. So far as the signatory of a cheque which is
dishonoured is concerned, he is clearly responsible for the incriminating
act and will be covered under sub-section (2) of Section 141."

19. In Saro} Kumar Poddar v. State (NCT of Delhi) and Anr., [2007] 2
c
SCALE.36, this Court held:

"Apart from the Company and the appellant, as noticed
hereinbefore, the Managing Director and all other Directors were also
made accused. The appellant did not issue any cheque. He, as noticed D
hereinbefore, had resigned from the Directorship of the Company. It
may be true that as to exactly on what date the said resignation was
accepted by the Company is not known, but, even otherwise, there
is no averment in the complaint petitions as to how and in what
manner the appellant was responsible for the conduct of the business
of the Company or otherwise responsible to it in regard to its E
functioning. He had not is.sued any cheque. How he is responsible for
dishonour of the cheque has not been stated. The allegations made
in paragraph 3, thus, in our opinion do not satisfy the requirements
of Section 141 of the Act."

20. Yet again in S.MS. Pharmaceuticals Ltd v. Neeta Bhalla and Anr., F
[2007] 3 SCALE 245, it was held:

"In terms of Section 138 of the Act, a complaint petition alleging an
offence thereto must demonstrate that the following ingredients exist
that:
G
(i) a cheque was issued;

(ii) the same was presented;

(iii) but, it was dishonoured;

(iv) a notice in terms of the said provision was served on the person H
t -

1064 SUPREME COURT REPORTS (2007) 4 S.C.R.

A sought to be made liable; and
(v) despite service of notice, heither any payment was made nor
other obligations, if any, were complied with within fifteen days
from the date of receipt of the notice.

The liability of a Director must be determined on the date on
B which _the offence is committed. Only because Respondent No. 1
herein was a party to a purported resolution dated 15.02.1995 by itself
does not lead to an inference that she was actively associated with ..,
the management of the affairs of the Company. This Court in this case
has categorically held that there may be a large number of Directors
c but some of them may not associate themselves in the management
of the day to day affairs of the Company and, thus, are not responsible
for conduct of the business of the Company. The averments must
state that the person who is vicariously liable for commission of the
offence of the Company both was incharge of and was responsible
for the conduct of the business of the Company. Requirements laid
D down therein must be read conjointly and not disjunctively. When a
legal fiction is raised, the ingredients therefor must be satisfied.

If the complaint petition is read in its entirety1 the same would
show that the only person who was actively associated in the matter
of obtaining loan, signing cheques and other affairs of the company
E which would lead to commission of the alleged offence was the
accused No. 2. By reason of the purported resolution dated 15.02.1995,
whereupon strong reliance has been placed by Mr. Mishra, only the
accused No. 2 was authorized to do certain acts on behalf of the
Company. The cheques were issued on 15 .08.1996, i.e., after a period
F of 17 months from the date of the said resolution. As is evident from
the averments made in the complaint petition, the cheques represented
the amount of interest payable for a total period of 15 days only
calculated at the rate of 25% per annum on the amount of deposit, viz.,
rupees two crores."

G 21. The observations made in Saroj Kumar Poddar (supra) were,
however, explained therein, stating:

"A faint suggestion was made that this Court in Saroj Kum_ar Poddar
(supra) has laid down the law that the complaint petition not only
must contain averments satisfying the requirements of Section 141 of
H the Act but must also show as to how and in what manner the
EVEREST ADVERTISING PVT.LID. v.STATE,GOVT.OFNCTOFDELHI[S.B.SINHA,J.) 1065
appellant was. responsible for the conduct of the business of the A
company or otherwise responsible to it in regard to its functioning.
A plain reading of the said judgment would show that no such general :
law was laid down therein. The observations were made in the context
of the said case as it was dealing with a contention that although no
direct averment was made as against the appellant of the said case
fulfilling the requirements of Section 141 of the Act but there were
B
other averments which would show that the appellant therein was
liable therefor."
~

.. 1 [See also N.K. Wahi v. Shekhar Singh & Ors., [2007] 4 SCALE 188] .

22. The law operating in this behalf is, therefore, no longer res integra. c
What is, therefore, necessary is the application of law. Necessary ingredients
of Section 141 have been stated in the complaint petition at more than one ,
place. Whether the same satisfies the requirements of law or not is the
question.
D
23. A Chairman of a large Company may or may not be aware of the
actual transaction. If in a given situation, cheques are issued in ordinary
-'\,_, course of business. The Managing Director or a Deputy Managing Director;
in view of S.MS. Pharmaceuticals Ltd (supra) would be deemed to be aware
thereof. A Chairman or a Director of a Company need not be. But, without
going into the fmer question raised by Mr. Tulsi, we may notice that allegations E
have not only been made in terms of the wordings of section but also at more
than one place, it has categorically been averred that the payments were made
after the meetings held by and between the representative of the Company
and Accused Nos. l to 5 which would include Respondent Nos. 2 and 3.

24. It is, therefore, not a case where having regard to the position held F
,.. by the said respondents in the Company, they could plead ignorance of the
',,., entire transaction.

25. Not only cheques were issued having regard to the huge amount
payable by Accused No. 6 to the Company but also as a result of fall out
of non-payment thereof, negotiations were held between the parties wherein
G
Respondent Nos. 2 and 3 took part, and, thus, in our opinion, there cannot
be any doubt that the ingredients of the provisions of Section 141 of the Act
stand satisfied.

26. Reliance placed by Mr. Tulsi on a decision of a Division Bench of H
EVERESTADVERTISINGPVT.LID.v.STATE,GOVT.OFNCTOFDEUil[S.B.SINHA,J.) 1067
29. The said decision, therefore, does not lay down any general A
proposition in regard to the allegations required to be made in a complaint
petition so as to fasten vicarious liability upon the holders of the office of
the Company. On the other hand, the three-Judge bench decision of this
Court in S.MS. Pharmaceuticals Ltd (supra) is binding on us.

30. For the reasons aforementioned, the impugned judgment cannot be B
sustained and is set aside accordingly. The appeal is allowed.

K.K.T. Appeal allowed.

..