Supreme Court of India
GUNMALA SALES PRIVATE LTD.versusANU MEHTA & ORS.
- Citation
- 2014 INSC 736
- Decided
- 17 October 2014
- Disposal
- Disposed off
Holding
A complaint under Section 138 read with Section 141 of the NI Act must specifically aver that the director was in charge of and responsible for the conduct of the company's business at the relevant time, and while the High Court may quash the complaint on the basis of unimpeachable evidence showing the director was not so, it cannot do so merely on a bald assertion.
Summary
The appellant, Gunmala Sales Private Ltd., challenged the Calcutta High Court’s order quashing criminal complaints under Section 138 read with Section 141 of the Negotiable Instruments Act against several directors of the accused company. The Supreme Court held that a complaint must specifically aver that a director was in charge of and responsible for the conduct of the company’s business at the time of the offence; a mere bald statement is insufficient. However, the High Court may still quash the complaint if unimpeachable evidence shows the director was not so involved, but it cannot do so merely on the basis of the lack of detailed averments. In the present case, the order quashing the complaints against all directors except the 70‑year‑old woman was set aside, the order against the elderly director was affirmed as an abuse of process, and the matter was remitted to the High Court for fresh consideration. The Court also clarified the scope of the inherent power under Section 482 of the Code of Criminal Procedure.
Issues considered
- Whether a complaint under Section 138 read with Section 141 of the Negotiable Instruments Act must contain a specific averment that a director was in charge of and responsible for the conduct of the company's business at the material time.
- Whether a bald assertion in the complaint suffices to sustain proceedings against directors.
- Whether the High Court can quash such a complaint under its inherent power under Section 482 of the Code of Criminal Procedure when the basic averment is present.
- Whether a director who has resigned prior to the issuance of the cheque can be prosecuted.
- Whether the High Court’s power under Section 482 can be limited by the presence of the basic averment.
Legislation cited
- Code of Criminal Procedure, 1973s. 482
- Companies Act, 1956
- Indian Evidence Act, 1872s. 74(2)
- Negotiable Instruments Act, 1881s. 138, s. 141
Subjects
Negotiable Instruments ActSection 138Section 141Director liabilityVicarious liabilitySection 482Criminal procedureQuashing of complaintAbuse of processCorporate law
Judgment
[2014) 10 S.C.R. 1117
GUNMALA SALES PRIVATE LTD. A
v.
ANU MEHTA & ORS.
(Criminal Appeal No. 2228 of 2014 ere.)
OCTOBER 17, 2014.
B
[RANJANA PRAKASH DESAI AND N.V. RAMANA, JJ.)
Negotiable Instruments Act, 1881:
s.138 rlw s.141 - Complaints against Directors on c
dishonour of cheques - Averments made in complaints that
Directors were in-charge and responsible for day-to-day
business of accused company - Complaints quashed by
High Court holding that mere bald assertion was not sufficient
to maintain the complaints - In petitions filed by Directors, no 0
clear case was made out that at the material time Directors
were not in-charge of and were not responsible for the conduct
of business of the company by referring to or producing any
incontrovertible or unimpeachable evidence which is beyond
suspicion or doubt - Order of High Court quashing complaints E
against Directors set aside, except in respect of an old lady
of 70 years of age, as making her stand the trial would be an
abuse of process of court - Code of Criminal Procedure, 1973
- s.482.
Code of Criminal Procedure, 1973: F
s. 482 - Exercise of power by High Court to quash
criminal proceedings u/s 138 rlw s.141 of Negotiable
Instrument Act against Directors of accused company -
Principles culled out. G
Disposing of the appeals, the Court
HELD: 1.1. So far as Directors who are not
signatories to the cheques or who are not Managing
1117 H
1118 SUPREME COURT REPORTS [2014] 10 S.C.R.
A Directors or Joint Managing Directors are concerned, it
is necessary to aver in the complaint filed u/s 138 read
with s.141 of the NI Act that at the relevant time when the
offence was committed, the Directors were in charge of
and were responsible for the conduct of the business of
B the company. There is no deemed liability of such
Directors. This averment assumes importance because
it is the basic and essential averment which persuades
the Magistrate to issue process against the Director. Thus,
if this basic averment is missing the Magistrate is legally
c justified in not issuing process. [para 26-27] [1114-B-E]
Saroj Kumar Poddar v. State (NCT of Delhi) and anr.
2007 (1) SCR 907 = 2007 (3) SCC 693 - N. Rangachari v.
Bharat Sanchar Nigam Ltd. 2007 (5) SCR 329 = 2007
(5) SCC 108; Paresh P. Rajda v. State of Maharashtra and
D anr. 2008 (8) SCR 1191=2008 (7) SCC 442; Malwa Cotton
and Spinning Mills Ltd. v. Virsa Singh Sidhu and ors. 2008
(12) SCR 68 = 2008 (17) SCC 147; K.K. Ahuja v. V.K. Arora
and anr. 2009 (10) sec 48; Manna/al Chamaria v. State of
West Bengal (2014) 4 SCALE 55 A.K. National Small
E Industries Corporation Limited v. Harmeet Singh Painta/ and
anr. 201 o (2) SCR 805 = 201 o (3) sec 330; SMS
Pharmaceuticals Ltd. (2) v. Neeta Bhalla 2007 (2) SCR 862
= 2007 (4) SCC 70 ("SMS Pharma-(2r Rallis India Limited
v. Poduru Vidya Bhushan and ors. 2011 (5) SCR 289 = 2011
F (13) SCC 88 A.K. Singhania v. Gujarat State Fertilizer
Company Ltd. 2013(12) SCALE 673 - relied on.
Palmer's Company Law 20th Edition, Guide to the
Companies Act by A. Ramaiya 16th Edition and Principles
G of Modern Company Law by Gower and Davies 17th Edition
- referred to.
1.2. Inherent power u/s 482 of the Code is to be
invoked to prevent abuse of the process of any court or
otherwise to secure ends of justice. If the requisite
H
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1119
averment is there, High Court need not dismiss the A
petition as a rule observing that the trial must go on and
the High Court is not precluded from looking into other
circumstances if any. [para 27] [1114-F-G]
SMS Pharmaceuticals Limited v. Neeta Bhalla and anr. B
=
2005 (3) Suppl. SCR 371 2005 (8) SCC 89 - relied on.
1.3. Just as the complainant is entitled to presume in
view of provisions of the Companies Act that the Director
was concerned with the issuance of the cheque, the
Director is entitled to contend that he was not concerned C
with the issuance of cheque for a variety of reasons. It is
for the High Court to consider these submissions.
Quashing of a complaint is a serious matter. Complaint
cannot be quashed for the asking. For quashing of a
complaint it must be shown that no offence is made out D
at all against the Director. [para 28 & 30] [1145-G-H; 1146-
A; 1147-A-B]
Anita Malhotra v. Apparel Export Promotion Council and
=
anr. ; 2011 (13) SCR 76 2012 (1) SCC 520, Harshendra E
=
Kumar D v. Reba ti/ata Kotey & Ors. 2011 (2) SCR 670 2011
(3) sec 351 - relied on.
1.4. There could be a case where the High Court may
feel that filing of the complaint against all Directors is
abuse of the process of ~ourt. The High Court would be F
justified in such cases in,..quashing the complaint after
looking into the material furnished by the accused. At that
stage there cannot be a mini trial or a roving inquiry. The
material on the face of it must be convincing or
uncontrovered or there must be some totally acceptable G
circumstances requiring no trial to establish the
innocence of the Directors. [para 32] [1149-D-E]
1.5. In the instant case, in the application filed by the
respondents, no clear case was made out that at the H
1120 SUPREME COURT REPORTS [2014] 10 S.C.R.
A material time, the Directors were not in charge of and were
not responsible for the conduct of the business of the
company by referring to or producing any
uncontrovertible or unimpeachable evidence which is
beyond suspicion or doubt or any totally acceptable
B circumstances. In the circumstances, the matter deserves
to be remitted to the High Court for fresh hearing.
However, the order passed by the High Court quashing
the process in CC No. 224035 of 2011 as against the
accused, an old lady over 70 years of age, is affirmed as
c in the peculiar facts and circumstances of the case,
making her stand the trial would be an abuse of process
of the court. The impugned order to the extent it quashes
the process issued against other Directors is set aside
and the matter is remitted to the High Court for
consideration afresh. [para 34] (1151-G-H; 1152-D-E]
0
Shree Raj Travels and Tours Ltd.· v. Destination of the
World (subcontinent) Pvt. Ltd. 66 Comp Cas 26 (Delhi); G.N.
Verma v. State of Jharkhand and anr. (2014) 4 sec 282; N.K.
Wahi v. Shekhar Singh and ors. 2007 (3) SCR 883 = 2007
E (9) SCC481; MRF Limited etc. v. Manohar Parrikar and ors.
etc. 2010 (5) SCR 1081 = 2010 (11) SCC 37 4; Sabitha
Ramamurthy v. R.B.S. Channabaasavaradhya 2006
(6) Suppl. SCR 126 = 2006 (10) sec 581 - cited.
Case Law Reference:
F
2009 (1 O) sec 48 relied on para 8
2005 (3) Suppl. SCR 371 relied on para 8
(2014) 4 SCALE 55 relied on para 8
G
2013(12) SCALE 673 relied on para 8
-
2011 (5) SCR 289 relied on para 8
2006 (6) Suppl. SCR 126 cited para
H 2008 (8) SCR 1191 relied on para 8
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1121
2008 (12) SCR 68 relied on para 8 A
2007 (5) SCR 329 relied on para 8
66 Comp Cas 26 (Delhi) cited para 8
(2014) 4 sec 282 cited para 9 B
2010 (2) SCR 805 relied on para 9
2011 (13) SCR 76 relied on para 9
2011 (2) SCR 670 relied on para 9
c
2007 (3) SCR 883 cited para 9
2010 (5) SCR 1081 cited para 9
2007 (1) SCR 907 relied on para 14
2007 (2) SCR 862 relied on para 15 D
2006 (6) Suppl. SCR 126 cited para 16
2008 (8) SCR 1191 cited para 18
CRIMINAL AP PELLATE JURISDICTION : Criminal Appeal E
No. 2228 of 2014.
From the Judgment & Order dated 25.6.2012 of the High
Court at Calcutta in C.R.R No. 4099 of 2011.
WITH F
Crl A. No. 2229-2241, 2242-2249, 2550-2260 & 2261-2265
of 2014.
Gurukrishna Kumar, Devashish Bharuka, Deepayan
G
Mandal, Vaibhav Niti for the Appellant.
Abhishek Manu Singhvi, T. Mahipal, Rishabh Sancheti,
Yatin Sachdeva, Padma Priya for the Respondents.
The Judgment of the Court was delivered by H
1122 SUPREME COURT REPORTS [2014) 10 S.C.R.
A (SMT.) RANJANA PRAKASH DESAI, J. 1. Leave
granted.
2. In these appeals, we are concerned with the question
as to whether the High Court was justified in quashing the
proceedings initiated by the Magistrate on the ground that there
8
was merely a bald assertion in the complaint filed under
Section 138 read with Section 141 of the Negotiable
Instruments Act, 1881 ("the NI Act") that the Directors were
at the time when the offence was committed in charge of and
C responsible for the conduct and day-to-day business of the
accused-company which bald assertion was not sufficient to
maintain the said complaint.
3. These appeals arise out of several complaints filed
under Section 138 read with Section 141 of the NI Act. The
D complaints were filed by Gunmala Sales Private Limited or
Rooprekha Sales Private Limited or by both. In the complaints,
the respondents herein and others were arrayed as accused.
After the process was issued, the respondents filed various
applications under Section 482 of the Code of Criminal
E Procedure, 1973 ("the code") in the High Court. The High
Court disposed of one application being C.R.R. No.4099 of
2011 by a reasoned order. As the same issue was involved in
all the applications, the other applications were disposed of in
terms of judgment in C.R.R. No.4099 of 2011. Special Leave
F Petition (Crl.) No.1724 of 2013 was filed challenging the said
judgment in C.R.R. No.4099 of 2011. We may, therefore, for
the disposal of these appeals, refer to the facts in civil appeal
arising out of Special Leave Petition No.1724 of 2013, treating
the same as the lead case.
G 4. It is the case of the appellant that in or about February,
2008, one Navkar Buildestates Private Limited ("the said
Company") through its Directors - respondents 1 to 3
approached the appellant for certain financial assistance to
meet the working capital requirement of the said Company.
H
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1123
[RANJANA PRAKASH DESAI, J.]
Accordingly, at the request of respondents 1 to 3, the appellant A
lent and advanced certain amount of money to the said
Company. The said amount carried interest at the rate of 6%
per annum. Respondents 1 to 3 along with the Managing
Director of the said Company agreed and undertook to pay the
said amount on or before 31/7/2011. It was further agreed by 8
the respondents that on their failure to pay the amount on or
before 31/7/2011, the appellant would be entitled to claim
interest at the rate of 18% per annum. The respondents failed
to repay the entire amount on or before 31/7/2011.
5. On 31/7/2011, in acknowledgment of their liability and C
towards repayment of the amount due, the said Company
issued cheques in favour of the appellant. On 2/8/2011, when
the appellant presented the said cheques to its banker -
Canara Bank, the same were returned unpaid with the remark
"Insufficient Funds". On 20/8/2011, the appellant sent a D
statutory demand notice to respondents 1 to 4 under Section
138 of the NI Act. The said notice was received by respondents
1 to 4 on 27/8/2011. As respondents 1 to 4 failed to repay the
amount as demanded in the said notice, on 26/9/2011, the
appellant filed a complaint in the Court of the Chief Metropolitan E
Magistrate at Calcutta. Learned Magistrate accepted the said
complaint and passed the summoning order.
6. Respondents 1 to 4 filed an application before the High
Court of Calcutta under Section 482 of the Code for quashing F
the proceedings pending before the learned Magistrate. The
High Court framed two questions as under:
"(i) Whether the Directors can be prosecuted on the
bald assertion made in the complaint, that "the
Directors thereof and were at the time when the G
offence committed in charge of and were
responsible for the conduct and day to day
business of the said accused No. 1 company".
(ii) Whether the Director who has resigned can be H
1124 SUPREME COURT REPORTS [2014] 10 S.C.R.
A prosecuted after his resignation has been
accepted by the Board of the Directors of the
Company".
So far as the first question is concerned, the High Court.
after referring to certain judgments of this Court, held that except
8
the averment that the Directors were in-charge of and
responsible for the conduct and day to day business of the
Company, nothing has been stated in the complaint as to what
part was played by them and how they were responsible for the
finances of the company, issuance of cheques and whether they ~
C had control over the funds of the company. The High Court
observed that the complaint lacked material averments. The
High Court quashed the proceedings on this ground. So far as
the second question is concerned, the High Court held that it
is not necessary to answer it because the first question is
D answered in favour of respondents 1 to 4. The High Court
quashed the complaint. Being aggrieved by the said order, the
appellant has approached this Court by way of this appeal.
7. We have heard Mr. Gurukrishna Kumar, learned senior
E counsel appearing for the appellant as well as Dr. Abhishek
Manu Singhvi, learned senior counsel appearing for the
respondents. We have perused the written submissions filed
by the parties.
8. Gist of the written submissions of the appellants.
F
(a) It is settled law that a specific averment in the
complaint that he/she is in charge of and is
responsible to the company for the conduct of the
business of the company is sufficient to maintain the
G complaint under Section 138 of the NI Act. It is not
incumbent upon the complainant to elaborate in the
complaint the role played by each of the Directors
in the transaction forming the subject matter of the
complaint. A Director is, in law, in charge of and is
H responsible to the company for the business of the
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1125
[RANJANA PRAKASH DESAI, J.]
company in view of the various provisions of the A
Companies Act and, therefore, his position is
different from that of other officers when arrayed as
a co-accused in a complaint under Section 138 of
the NI Act. The vicarious liability of Director/
secretary/manager/other officers of a company B
under Section 141 of the NI Act has to be
understood in the light of the statutory language
employed in Section 141(1) and Section 141(2) of
the NI Act. At any rate, the individual role of a
Director is exclusively in the realm of internal c
management of a company and at the initial stage
of a complaint, it would be unreasonable to expect
a complainant to elaborate the specific role played
by a Director in the transactions forming the subject
matter of the complaint. In the present case, the
0
appellant has pleaded that "the accused 2, 3, 4 and
5 are the directors of accused 1 and were at the
time when the offence committed in charge of and
were responsible for the conduct and day to day
business of the said accused-company"." The High
Court on a complete misconstruction of legal E
position enunciated by this Court in various
judgments, quashed the complaint on the ground
that "nothing has been stated as to what part was
played by the Directors petitioners and how they
were responsible regarding the finances of the F
company, issuance of cheques and control over the
funds of the company." In this connection, it is
necessary to turn to K.K. Ahuja v. V.K. Arora and
anr1• where this Court has referred to relevant
provisions of the Companies Act and observed that G
in case of a Director, Secretary or Manager [as
defined in Section 2(24) of the Companies Act], or
a person referred to in Clauses (e) and (f) of Section
1. (2009) 10 sec 48. H
1126 SUPREME COURT REPORTS [2014] 10 S.C.R.
A 5 of the Companies Act, an averment in the
complaint that he was in charge of and was
responsible to the company, for the conduct of the
business of the company is necessary to bring the
case under Section 141(1) of the NI Act and no
B further averment would be necessary in the
complaint though some particulars would be
desirable. In SMS Pharmaceuticals Limited v.
Neeta Bhalla and anf. ("SMS Pharma-(1 )"), this
Court has observed that the requirement of Section
c 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 deemed liability of the Director in such
D cases. Reference may also be made to Manna/al
Chamaria v. State of West Benga/3, A.K.
Singhania v. Gujarat State Fertilizer Company
Ltd. 4 , Rallis India Limited v. Poduru Vidya
Bhushan and ors. 5 , Paresh P. Rajda v. State of
E Maharashtra and anr. 6 , Malwa Cotton and
Spinning Mills Ltd. v. Virsa Singh Sidhu and ors. 7
and N. Rangachari v. Bharat Sanchar Nigam Ltd. 8
(b) So far as the decisions cited by the respondents
are concerned, all these decisions purported to
F follow the law laid down in SMS Pharma-(1), which
does not lay down any general proposition of law
2. (2005) 8 sec 89
3. (2014) 4 SCALE 55
G 4. 2013(12) SCALE 673
5. c2011) 13 sec 88
6. (2008) 1 sec 442
7. c2008) 11 sec 141
8. c2001) 5 sec 108
H
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1127 ·
[RANJANA PRAKASH DESAI, J.]
that the specific role of a Director sought to be A
arrayed as an accused has to be elaborated in the
complaint itself.
(c) The doctrine of 'Indoor Management' would be a
relevant factor to be considered while assessing the
averments to be made to satisfy the requirements B
of Section 141 of the NI Act. A complainant to
whom a cheque is issued by a company may not
be aware of the functions performed by a particular
Director in the company. The responsibility of each
of the Directors is exclusively the internal ' C
management of the company itself. In this
connection, it would be useful to refer to Rangachari
and Delhi High Court's judgment in Shree Raj
Travels and Tours Ltd. v. Destination of the World
(subcontinent) Pvt. Ltd. 9 • D
(d) Finally, it must be noted that vicarious liability is
contemplated in the NI Act to ensure greater
transparency in commercial transactions. This
object has to be kept in mind while considering E
individual cases and hardship arising out of a
particular case cannot be the basis for Directors to
try to wriggle out of prosecution. Section 482 of the
Code can be invoked where it is clear from
documents on record, such as Form-32, that the
F
Director is wrongly arraigned and not in any other
case. The High Court clearly fell into an error in
quashing the proceedings and, hence, impugned
order deserves to be set aside.
Mr. Gurukrishna Kumar, learned senior counsel for the G
appellant reiterated the above submissions.
9. Gist of the written submissions of the respondents:
9. 66 Comp Cas 26 (Delhi). H
1128 SUPREME COURT REPORTS [2014] 10 S.C.R.
A (a) The main accused Shantilal Mehta is facing trial in
all matters. The present appeal is limited to other
family members of Shantilal Mehta i.e. his father
Kanhaiyalal Mehta and his mother Shobha Mehta,
who are over 70 years of age, his wife who is 52
B years of age and his son who is 24 years of age.
They are dragged in to harass them.
(b) Mere bald statement that the Director is in charge
of responsible to the company is not sufficient to
maintain prosecution [G.N. Verma v. State of
c Jharkhand and anr. 10].
(c) Reproduction of statutory language of Section 141
is not sufficient. The necessary requirements of the
complaint which need to be indicated in the
D complaint are "how", "in what manner", "the role",
"description" and "specific allegation" as to the part
played by a person before he could be made an
accused. In this connection, reliance is placed on
National Smaf/ Industries Corporation Limited v.
E Harmeet Singh Paintal and anr. 11 , Anita Malhotra
v. Apparel Export Promotion Council and anr. 12 ,
N.K. Wahi v. Shekhar Singh and ors.13. These
conditions are intended to ensure that a person who
is sought to be made vicariously liable for an
offence of which the principle accused is the
F
Company, had a role to play in relation to the
incriminating act and further that such a person
should know what is attributed to him to make him
liable.
G (d) The appellants' plea of Indoor Management is totally
10. (2014) 4sec 282.
11. c201 O) 3 sec 330.
12. (2012) 1 sec s20.
H 13. c2001) 9 sec 481.
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1129
[RANJANA PRAKASH DESAI, J.]
misconceived. This doctrine is limited to protecting A
outsiders regarding internal infirmities of
Memorandum of Articles. Its real application in a
cheques bouncing case would have been if a plea
was taken that the company never had a power to
incur debt and hence there is no legal liability. This B
doctrine cannot be invoked to give a carte blanche
to an outsider to list all Directors for prosecution
without even giving their "role" or "part played". In
this connection, reliance is placed on MRF Limited
etc. v. Manohar Parrikar and ors. etc. 14 . The c
judgment of Delhi High Court in Shree Raj Travels
& Tours is in teeth of the law laid down by this Court
and, hence, does not appear to be correct.
Moreover, in commercial world, whether a person
deals with a company at the company's office or D
enters into a commercial transaction by e-mail, in
both cases, there is an awareness of the persons
responsible for the act of giving a cheques, without
the intention of honouring it. There is, therefore,
complete non-applicability of the doctrine of Indoor E
Management in such cases.
(e) It would be against the interest of justice to
prosecute all Directors. Such approach would delay
trials and would be against the very scheme of NI
Act. If all Directors are unnecessarily prosecuted, F
it would hinder good persons to come forward and
become Directors. It would have adverse effect on
corporate well being.
Dr. A.M. Singhvi, learned senior counsel for the G
respondents reiterated the above submissions.
10. It is necessary to first reproduce Section 141 of the NI
14. c2010) 11 sec 374. H
1130 SUPREME COURT REPORTS (2014] 10 S.C.R.
A Act because the issue involved in this matter revolves around
it. Section 141-of the NI Act 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,
B
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:
c
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
D 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 financial corporation owned or
E
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-
F 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
G 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,-
H
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1131
[RANJANA PRAKASH DESAI, J.]
(a) "company" means any body corporate and A
includes a firm or other association of individuals;
and
(b) "director", in relation to a firm, means a partner in
the firm.]"
B
11. It is also necessary to quote the relevant paragraphs
of the complaint which relate to the Directors of the accused
company. They read as under:
"2. The Accused No. 1 is a company within the meaning c
of the Companies Act, 1956, having its registered office
at 103-104, Shubh Apartment, 99-L, Bhopalpura,
Udaipur, P.S. Bhupalpura, Rajasthan - 313001 and the
Accused Nos.2, 3, 4 and 5 are the Directors thereof and
were at the time when the offence committed in charge D
of and were responsible for the conduct and day to day
business of the said accused No. 1 company.
3. In discharge of the accused persons' existing legal
debt and/or liability, the accused No. 1 company had,
issued and made over to the complainant an account E
payee cheque signed by the accused No.2 being
No. 008049 dated 31st July, 2011 for Rs.40, 00,'0001-
drawn on The Rajsamand Urban Co-Op. Bank Limited,
Udaipur Branch, Rajasthan - 313001."
F
It must be noted here that the complaint is quashed by the
High Court against all other accused except accused 2 who has
signed the cheques.
12. Several judgments have been cited before us. It is
necessary to refer to them in brief to get an idea as to how G
different Benches of this Court have dealt with this issue. We
must begin with SMS Pharma-(1), which is a decision of three-
Judge Bench of this Court. All subsequent decisions are of two-
Judge Benches. The three-Judge Bench was dealing with the
H
1132 SUPREME COURT REPORTS (2014] 10 S.C.R.
A reference made by a two-Judge Bench for determination of the
following questions:
"(a) Whether for purposes of Section 141 of the
Negotiable Instruments Act, 1881, it is sufficient if the
substance of the a/legation read as a whole fulfill the
B requirements of the said section and it is not necessary
to specifically state in the complaint that the person
accused was in charge of, or responsible for, the conduct
of the business of the company.
c (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 he proves to
the contrary.
D
(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
or joint managing director who admittedly would be in
charge of the company and responsible to the company
E for conduct of its business could be proceeded against. n
13. After considering Sections 138 and 141 of the NI Act,
Sections 203 & 204 of the Code and the relevant provisions
of the Companies Act, this Court answered the questions
F posed in the reference as under:
"(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.
G
This averment is an essential requirement of Section 141
and has to be made in a complaint. Without this averment
being made in a complaint, the requirements of Section
141 cannot be said to be satisfied.
H
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1133
[RANJANA PRAKASH DESAI, J.]
(b) The answer to the question posed in sub-para A
(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 company
cannot be deemed to be in charge of and responsible to
the company for the conduct of its business. The B
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 deemed liability of a director in such cases. c
(c) The answer to Question (c) has to be in the
affirmative. The 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, D
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 managing director,
these persons are in charge of and responsible for the
conduct of business of the company. Therefore, they get E
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."
F
14. In Saroj Kumar Poddar v. State (NCT of Delhi) and
anr. 15, the appellant therein was the Director of a public limited
company which had issued three cheques in favour of
respondent 2, who was manufacturer and supplier of chemical
compounds. The cheques having been dishonoured, the G
complaint came to be filed. Application for quashing of the
complaint was filed by the appellant in the High Court. The High
Court dismissed the said application. While setting aside the
1s. (2007) a sec 693. H
1134 SUPREME COURT REPORTS [2014] 10 S.C.R.
A High Court's order and after referring to SMS Pharrna-(1), a
two-Judge Bench of this Court observed as under:
"14 . ......... The appellant did not issue any cheque. He,
as noticed herein before, had resigned from· the
directorship of the Company. It may be true that as to
B
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 appel/ant was responsible for the
conduct of the business of the Company or otherwise
c responsible to it in regard to its functioning. He had not
issued any cheque. How he is responsible for dishonour
of the cheque has not been stated. The allegations made
in para 3, thus, in our opinion do not satisfy the
requirements of Section 141 of the Act."
D
This Court further observed that with a view to making a
Director of a company vicariously liable for the acts of the
company, it was obligatory on the part of the complainant to
make specific allegations as are required in law.
E
15. The reference having been answered in SMS Pharrna-
(1) individual cases were directed to be listed before an
appropriate Bench for disposal according to law. Pursuant to
this order the appeal was placed before a two-Judge Bench
of this Court. The two-Judge Bench of this Court in SMS
F Pharmaceuticals Ltd. (2) v. Neeta Bhafla 16 ("SMS Pharma-
(2)') noted that the High Court had quashed the complaint
against respondent 1 holding that the allegations contained in
the complaint as against respondent are vague and indefinite.
The two-Judge Bench observed that on a plain reading of the
G averments made in the complaint it was satisfied that the
statutory requirements as contemplated under Section 141 of
the NI Act were not satisfied, and, therefore, the High Court
judgment cannot be faulted. It must be noted that when the
H 1s. c2001) 4 sec 10.
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1135
[RANJANA PRAKASH DESAI, J.]
attention of this Court was drawn to observations made in Saroj A
Kumar Poddar that the complaint must not only contain
averments justifying the requirements of Section 141 of the NI
Act but must also show as to how and in what manner the
appellant therein was responsible for the conduct of the
business of the company or otherwise responsible to it in regard B
to its functioning, this Court observed that a plain reading of
the said judgment would show that no such general law was
laid down therein and the observations were made in the
context of the said case as it was dealing with the contention
that although no direct averment was made as against the c
appellant therein fulfilling the requirements of Section 141 of the
NI Act, but, there were other averments which would show that
the appellant therein was liable therefor.
16. In N.K. Wahi it was pleaded by the appellants therein
in the complaint that M/s. Western India Industries Limited is a D
limited company and the respondents therein and some others
were the Directors/persons responsible for carrying on the
business of the company and their liability shall be joint and
several. The respondents therein filed an application invoking
Section 482 of the Code. The High Court quashed the order E
issuing summons on the ground that the evidence does not
establish that the respondents were either in charge of or were
responsible to the company for the conduct of business. In the
appeal, following SMS Pharma-(1), Sabitha Ramamurthy v.
R.B.S. Channabaasavaradhya 17 and Saroj Kumar Poddar, a F
two-Judge Bench of this Court reiterated what is stated in the
said judgments that Section 141 raises a legal fiction by reason
of which a person, although is not personally liable for
commission of such an offence, would be vicariously liable
therefor. Such vicarious liability can be inferred against the G
company only if the requisite statement is made in the
complaint. It was further observed that before a person can be
made vicariously liable, strict compliance with the statutory
requirements would be insisted. It is clear that this is a case
17. (2006) 10 sec sa1. H
1136 SUPREME COURT REPORTS (2014] 10 S.C.R.
A where the basic averments in terms of Section 141 were absent
and the two-Judge Bench followed SMS Pharma-(1) and
confirmed the quashing of the complaint. The relevant
paragraph of this judgment needs to be quoted.
B "8. To launch a prosecution, therefore, against the
alleged Directors there must be a specific a/legation in
the complaint as to the part played by them in the
transaction. There should be clear and unambiguous
allegation as to how the Directors are in-charge and
c responsible for the conduct of the business of the
company. The description should be clear. It is true that
precise words from the provisions of the Act need not be
reproduced and the court can always come to a
conclusion in facts of each case. But still, in the absence
of any averment or specific evidence the net result would
D
be that complaint would not be entertainable. •
17. In N. Rangachari a two-Judge Bench of this Court was
again dealing with the same question. Averments made in the
complaint before the two-Judge Bench were similar in nature
E as the averments made in the complaint in the present case.
The complainant therein was Bharat Sanchar Nigam Limited
(BSNL). Its case was that the cheques issued by the Data
Access (India) Limited in discharge of their pre-existing
liabilities were dishonoured for insufficiency of funds. A petition
F was filed for quashing the complaint by the appellant-Data
Access (India) Limited stating that he was nominated as a
. honorary chairman of the company without any remuneration
and was holding an honorary post in the company. He was
never assigned with the financial and business activities. The
G complaint did not contain adequate averments to justify
initiation of criminal proceedings against him. The High Court
dismissed the petition on the ground that the court cannot
decide the pleas raised by the appellant in a petition filed under
Section 482 of the Code. Those please will have to be
H established in trial. This Court referred to the relevant extracts
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1137
[RANJANA PRAKASH DESAI, J.]
from Palmer's Company Law18, Guide to the Companies Act A
by A. Ramaiya 19 and Principles of Modern Company Law by
Gower and Davies20 and expressed that in the commercial
world, a person having a transaction with a company is entitled
to presume that the Directors of the company are in charge of
the affairs of the company and it is for the Directors to prove B
to the contrary at the trial. This Court also observed that a
person having business dealings with the company may not be
aware of the arrangement within the company in regard to its
management. Pertinently, this Court expressed that the decision
of the three-Judge Bench in SMS Pharma-(1) was binding on c
it. The two-Judge Bench understood SMS Pharma-(1) as laying
down the law that what is to be looked into is whether in the
complaint, in addition to asserting that accused are the
Directors of the company, it is further alleged that they are in
charge of and responsible to the company for the conduct of D
the business of the company. This Court observed that reading
the complaint, as a whole, it was clear that the allegations in
the complaint were that at the time when two dishonoured
cheques were issued by the company, the appellants therein
were the Directors of the company and were in charge of the
affairs of the company, and, therefore, the High Court had rightly E
dismissed the petition;
18. In Paresh P. Rajda v. State of Maharashtra and anr. 21 ,
similar question arose before a two-Judge Bench of this Court.
The High Court had refused to quash the complaint on the F
ground that an overall reading of the complaint showed that
specific allegations had been levelled against the appellant that
he being a responsible officer of the company was equally
liable and that if it is ultimately found that he had, in fact, no role
to play, he would be entitled to an acquittal. It appears that G
18. 20'" Edition.
19. 16'" Edition.
20. 17'" Edition.
21. (2008) 7 sec 442. H .
1138 SUPREME COURT REPORTS [2014] 10 S.C.R.
A thereafter accused 2 and 4, the Chairman and a Director
r.espectively of the company approached this Court. This Court
referred to SMS Pharma~(1) and N. Rangachari and noted a
slight departure in N. Rangachari in favour of the complainant
from the view taken in SMS Pharma-(1) and further noted that
B ultimately the entire matter would boil down to an examination
of the nature of averments made in the complaint. The two-
Judge Bench quoted the relevant paragraphs of the complaint
in which it was stated that accused 2 was the Chairman of the
company and was responsible for the day-to-day affairs of the
c company and was, therefore, liable to repay the amounts of
dishonoured cheques. It was further stated in the complaint that
accused 3 being Joint Managing Director and accused 4, 5 and
6 being Directors of the company are responsible officers of
the company and, therefore, they are liable to repay the
D amounts of the dishonoured cheques. This Court observed that
from the High Court judgment, it appears that the question as
to whether accused 2 was responsible for the business of the
comparJY had not been seriously challenged. This Court
observed that there were clear allegations against both the
E appellants-accused; that they were officers of the company and
were responsible for the affairs of the company and that at a
stage where the trial had not yet started, it is inappropriate to
quash the proceedings against them.
19. In Ma/wa Cotton & Spinning Mills Ltd., the High Court
F had accepted the prayer of respondent 1 for quashing the
proceedings initiated against him under Section 138 of the NI
Act on the ground that he had resigned from the Directorship
before the cheques were issued. This Court was of the view
that whether respondent 1 had resigned before the cheques
G were issued involves factual dispute. Referring to N.
Rangachari, where it is observed that a person in the
commercial world having a transaction with a company is
entitled to presume that the Directors of the company are in
charge of the affairs of the company and if any restriction on
H their powers is placed by the Memorandum of Articles of the
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1139
[RANJANA PRAKASH DESAI, J.]
Company, it is for the Directors to establish that in the trial this A
Court allowed the appeal filed by the complainant holding that
the High Court was not justified in quashing the proceedings
against respondent 1.
20. In K.K. Ahuja, where this Court was considering a
8
similar question after referring to SMS Pharma-(1), SMS
Pharma-(2), Saroj Kumar Poddar and N.K. Wahi and other
relevant judgments and after referring to the relevant provisions
of the Companies Act, this Court summarized the position
under Section 141 of the NI Act as under:
c
"27. The position under Section 141 of the Act can be
summarised thus:
(i) If the accused is the Managing Director or a Joint
Managing Director, it is not necessary to make an D
averment in the complaint that he is in charge of, and is
responsible to the company, for the conduct of the
business of the company. It is sufficient if an averment
is made that the accused was the Managing Director or
Joint Managing Director at the relevant time. This is E
because the prefix "Managing" to the word "Director''
makes it clear that they were in charge of and are
responsible to the company, for the conduct of the
business of the company.
(ii) In the case of a Director or an officer of the company F
who signed the cheque on behalf of the company, there
is no need to make a specific averment that he was in
charge of and was responsible to the company, for the
conduct of the business of the company or make any
specific allegation about consent, connivance or G
negligence. The very fact that the dishonoured cheque
was signed by him on behalf of the company, would give
rise to responsibility under sub-section (2) of Section
141.
H
1140 SUPREME COURT REPORTS [2014] 10 S.C.R.
A (iii) In the case of a Director, secretary or manager [as
defined in Section 2(24) of the Companies Act] or. a
person referred to in clauses (e) and (f) of Section 5 of
the Companies Act, an averment in the complaint that
he was in charge of, and was responsible to the company,
B for the conduct of the business of the company is
necessary to bring the case under Section 141(1) of the
Act. No further averment would be necessary in the
complaint, though some particulars will be desirable.
They can also be made liable under Section 141(2) by
making necessary averments relating to consent and
c connivance or negligence, in the complaint, to bring the
matter under that sub-section.
(iv) Other officers of a company cannot be made liable
under sub-section (1) of Section 141. Other officers of a
D company can be made liable only under sub-section (2)
of Section 141, by averring in the complaint their position
. and duties in the company and their role in regard to the
issue and dishonour of the cheque, disclosing consent,
connivance or negligence."
E
21. In National Small Industries Corporation Limited, this
Court was dealing with the same question. After referring to
SMS Pharma-(1 ), SMS Pharma-(2), Saroj Kumar Poddar,
N.K. Wahi, N. Rangachari, Paresh P. Rajda, K.K. Ahuja and
F other relevant judgments, this Court laid down ~he following
principles: ·
"(i) The primary responsibility is on the complainant to
make specific averments as are required under the law
in the complaint so as to make the accused vicariously
G 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 for
the offence. The criminal liability can be fastened only
H
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1141
[RANJANA PRAKASH DESAI, J.)
on those who, at the time of the commission of the A
offence, were in charge of and were responsible for the
conduct of the business of the company.
(iii) Vicarious liability can be inferred against a company
registered or incorporated under the Companies Act, 8
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 offence
committed by the company along with averments in the
petition containing that accused were in-charge of and C
responsible for the business of the company and by
virtue of their position they are liable to be proceeded with.
(iv) Vicarious liability on the part of a person must be
pleaded and proved and not inferred.
D
(v) If accused is a Managing Director or a Joint Managing
Director then it is not necessary to make specific
averrnent in the complaint and by virtue of their position
they are liable to be proceeded with.
(vi) If the accused is a Director or an Officer of a company E
who signed the cheques on behalf of the company then
also it is not necessary to make specific averment in
complaint.
(vii) The person sought to be made liable should be in F
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."
22. In Rallis India Limited, this Court was dealing with a G
similar issue. The High Court had allowed application filed under
Section 482 of the Code and discharged the applicants therein.
While setting aside the High Court's order, this Court found that
there were averments in the complaint that the respondents
H
1142 SUPREME COURT REPORTS [2014] 10 S.C.R.
A were partners of the firm at the relevant point of time and were
looking after the day-to-day affairs of the partnership firm. This
averment had been specifically mentioned by the appellant in
the complaint even though denied by the respondents but the
burden of proof that at the relevant point of time, the
B respondents were not the partners, lies specifically on them and
this onus is required to be discharged by them by leading
evidence. This Court observed that where there are several
disputed facts involved for instance when the partnership came
into being and when the respondents had actually retired from
c the partnership, etc. the ratio of SMS Pharma-(1) can be
followed only, after the factum that the accused were the
Directors or partners of a company or a firm respectively at the
relevant point of time stands fully established. In cases, where
there are allegations and counter-allegations between the
D parties regarding the very composition of the firm, the ru.le of
'specific averment' laid down in SMS Pharma-(1) must be
broadly construed.
23. In Anita Malhotra, the High Court had dismissed the
petition filed praying for quashing of the criminal complaint
E instituted against the appellant under Section 138 of the NI Act.
The appellant claimed to be a non-executive Director of the
company which had issued the cheques. The appellant claimed
that she had resigned from the company on 20/11/1998 while
the cheques were issued in the year 2004. A two-Judge Bench
F of this Court held that though it is not proper for the High Court
to make a roving enq·uiry and consider the defence of the
accused at the stage of a petition filed for quashing the
complaint, if any documents, which are beyond suspicion or
doubt, are placed, it can take them into account. This Court
G looked into the certified copy of the annual return, which was a
public document as per the Companies Act read with Section
74(2) of the Evidence Act and held that the appellant had
resigned from the Directorship of the company much prior to
the issuance of the cheques. While setting aside the High
H Court's order, this Court reiterated that in case of a Director,
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1143
[RANJANA PRAKASH DESAI, J.]
the complaint should specifically spell out how and in what A
manner the Director was in charge of or was resp0nsible to the
company for conduct of its business and mere bald statement
that he or she was in charge of and was responsible to the
company for conduct of its business is not sufficient. This Court
observed that in the case before it except the mere bald and B
cursory statement with regard to the appellant, the complainant
had not specified her role in the day-to-day affairs of the
company and on this ground alone, the appellant was entitled
to succeed.
24. In AK. Singhania, while dealing with the same issue C
a two-Judge Bench of this Court observed that it is necessary
for a complainant to state in the complaint that the person
accused was in charge of and responsible for the conduct of
the business of the company. Although, no particular form for
making such an allegation is prescribed, and it may not be D
necessary to reproduce the language of Section 138 of the NI
Act, but a reading of the complaint should show that the
substance of the accusation discloses that the accused person
was in charge of and responsible for the conduct of the business
of the company at the relevant time. E
25. In Manna/a/ Chamaria, this Court reiterated the above
observations and observed that in the averments made before
it there was no specific or even a general allegation made
against the appellants. This Court, therefore, dismissed the F
complaint filed against the appellants under Section 138 of the
NI Act.
26. It is clear from a perusal of the above decisions that
SMS Pharrna-(1), which is a three-Judge Bench decision, still
holds the field. In all subsequent decisions, two-Judge Benches G
of this Court have followed SMS Pharma-(1). No doubt that
there is a slight deviation in N. Rangachari in favour of the
complainant, but, even in that decision, the two-Judge Bench
accepts that SMS Pharma-(1) has a binding force. In SMS
Pharma-(1), KK Ahuja and National Smail Industries Ltd. this H
1144 SUPREME COURT REPORTS [2014] 10 S.C.R.
A Court summarized its conclusions. We are concerned in this
case with Directors who are not signatories to the cheques. So.
far as Directors who are not signatories to the cheques or who
are not Managing Directors or Joint Managing Directors are
concerned, it is clear from the conclusions drawn in the above-
B mentioned cases that it is necessary to aver in the complaint
filed under Section 138 read with Section 141 of the NI Act that
at the relevant time when the offence was committed, the
Directors were in charge of and were responsible for the
conduct of the business of the company. This is a basic
c requirement. There is no deemed liability of such Directors.
27. This averment assumes importance because it is the
basic and essential averment which persuades the Magistrate
to issue process against the Director. That is why this Court in
SMS Pharma-(1) observed that the question of requirement of
D averments in a complaint has to be considered on the basis
of provisions contained in Sections 138 and 141 of the NI Act
read in the light of the powers of a Magistrate referred to in
Sections 200 to 204 of the Code which recognize the
Magistrate's discretion to reject the complaint at the threshold
E if he finds that there is no sufficient ground for proceeding. Thus,
if this basic averment is missing the Magistrate is legally
justified in not issuing process. But here we are concerned with
the question as to what should be the approach of a High Court
when it is dealing with a petition filed under Section 482 of the
F Code for quashing such a complaint against a Director. If this
averment is there, must the High Court dismiss the petition as
a rule observing that the trial must go on? Is the High Court
precluded from looking into other circumstances if any? Inherent
power under Section 482 of the Code is to be invoked to
G prevent abuse of the process of any court or otherwise to
secure ends of justice. Can such fetters be put on the High
Court's inherent powers? We do not think so.
28. SMS Pharma-(1), undoubtedly, says that it is
necessary to specifically aver in the complaint that the Director
H
GUN MALA SALES PRIVATE LTD. v. ANU MEHTA 1145
[RANJANA PRAKASH DESAI, J.]
was in charge of and responsible for the conduct of the A
company's business at the relevant time when the offence was
committed. It says that this is a basic requirement. And as we
have already noted, this averment is for the purpose of
persuading the Magistrate to issue process. If we revisit SMS
Pharma-(1), we find that after referring to the various provisions B
of the Companies Act it is observed that those provisions show
that what a Board of Directors is empowered to do in relation
to a particular company depends upon the roles and functions
assigned to Directors as per the memorandum and articles of
association of the company. There is nothing which suggests c
that simply by being a Director in a company, one is supposed
to discharge particular functions on behalf of a company. As a
Director he may be attending meetings of the Board of Directors
of the company where usually they decide policy matters and
guide the course of business of a company. It may be that a D
Board of Directors may appoint sub-committees consisting of
one or two Directors out of the Board of the company who may
be made responsible for the day-to-day functions of the
company. This Court further observed that what emerges from
this is that the role of a Director in a company is a question of
E
fact depending on the peculiar facts in each case and that there
is no universal rule that a Director of a company is in charge
of its everyday affairs. What follows from this is that it cannot
be concluded from SMS Pharma-(1) that the basic requirement
stated therein is sufficient in all cases and whenever such an
averment is there, the High Court must dismiss the petition filed F
praying for quashing the process. It must be remembered that
the core of a criminal case are its facts and in factual matters
there are no fixed formulae required to be followed by a court
unless it is dealing with an entirely procedural matter. We do
not want to discuss 'the doctrine of Indoor Management' on G
which submissions have been advanced. Suffice it to say, that
just as the complainant is entitled to presume in view of
provisions of the Companies Act that the Director was
concerned with the issuance of the cheque, the Director is
entitled to contend that he was not concerned with the issuance H
1146 SUPREME COURT REPORTS [2014] 10 S.C.R.
A of cheque for a variety of reasons. It is for the High Court to
consider these submissions. The High Court may in a given
case on an overall reading of a complaint and having come
across some unimpeachable evidence or glaring
circumstances come to a conclusion that the petition deserves
B to be allowed despite the presence of the basic averment. That
is the reason why in some cases, after referring to SMS
Pharma-(1), but considering overall circumstances of the case,
this Court has found that the basic averment was insufficient,
that something more was needed and has quashed the
c complaint.
29. When a petition is filed for quashing the process, in a
given case, on an overall reading of the complaint, the High
Court may find that the basic averment is sufficient, that it makes
D out a case against the Director; that there is nothing to suggest
that the substratum of the allegation against the Director is
destroyed rendering the basic averment insufficient and that
since offence is made out against him, his further role can be
brought out in the trial. In another case, the High Court may
quash the complaint despite the basic averment. It may come
E across some unimpeachable evidence or acceptable
circumstances which may in its opinion lead to a conclusion that
the Director could never have been in charge of and
responsible for the conduct of the busines~of the company at
the relevant time and therefore making him stand the trial would
F be abuse of the process of court as no offence is made out
against him.
30. When in view of the basic averment process is issued
the complaint must proceed against the Directors. But; if any
G Director wants the process to be quashed by filing a petition
under Section 482 of the Code on the ground that only a bald
averment is made in the complaint and that he is really not
concerned with the issuance of the cheque, ~e must in order
to persuade the High Court to quash the process either furnish
H some sterling uncontrovertible material or acceptable
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1147
[RANJANA PRAKASH DESAI, J.]
circumstances to substantiate his contention. He must make out A
a case that making him stand the trial would be abuse of the
process of court. He cannot get the complaint quashed merely
on the ground that apart from the basic averment no particulars
are given in the complaint about his role, because ordinarily the
basic averment would be sufficient to send him to trial and it B
could be argued that his further role could be brought out in the
trial. Quashing of a complaint is a serious matter. Complaint
cannot be quashed for the asking. For quashing of a complaint
it must be shown that no offence is made out at all against the
Director. c
31. In this connection, it would be advantageous to refer
to Harshendra Kumar D v. Rebatilata Kotey & Ors. 22 , where
process was issued by the Magistrate on a complaint filed
under Section 138 read with Section 141 of the NI Act. The
appellant therein challenged the proceeding by filing revision D
application under Section 397 read with Section 401 of the
Code. The case of the appellant-Director was that he had
resigned from Directorship. His resignation was accepted and
notified to the Registrar of Companies. It was averred in the
complaint that the appellant was responsible for the day-to-day E
affairs of the company and it was on his and other Directors
assurance those demand drafts were issued. Despite this
averment, this Court quashed the complaint taking into account
resolution passed by the company, wherein it was reflected that
the appellant had resigned from the post of Director much prior F
to the issuance of cheque and the fact that the company had
submitted Form-32. It was argued before this Court that the
documents furnished by the accused could not have been taken
into account. Repelling this submission this Court observed as
unde~ G
"24. In Awadh Kishore Guptai this Court while
dealing with the scope of power under Section 482 of the
Code observed: (SCC p. 701, para 13)
22. c20~ 1) 3 sec 351. H
1148 SUPREME COURT REPORTS [2014] 10 S.C.R.
A "13. It is to be noted that the investigation was not
complete and at that stage it was impermissible
for the High Court to look into materials, the
acceptability of which is essentially a matter for
trial. ·While exercising jurisdiction under Section
B 482 of the Code, it is not permissible for the court
to act as if it was a trial Judge."
25. In our judgment, the above observations cannot
be rea.d to mean that in a criminal case where trial is yet
to take place and the matter is at the stage of issuance
c of summons or taking cognizance, materials relied upon
by the accused which are in the nature of public
documents or the materials which are beyond suspicion
or doubt, in no circumstance,,can be looked into by the
High Court in exercise of its jurisdiction under Section
D 482 or for that matter in exercise of revisional jurisdiction
under Section 397 of the Code. It is fairly settled now that
while exercising inherent jurisdiction under Section 482
or revisional jurisdiction under Section 397 of the Code
in a case where complaint is sought to be quashed, it is
E not proper for the High Court to consider the defence of
the accused or embark upon an enquiry in respect of
merits of the accusations. However, in an appropriate
case, if on the face of the documents - which are beyond
suspicion or doubt - placed by the accused, the
F accusations against him cannot stand, it would be
travesty of justice if the accused is relegated to trial and
he is asked to prove his defence before the trial court. In
such a matter, for promotion of justice or to prevent
injustice or abuse of process, the High Court may look
G into the materials which have significant bearing on the
matter at prima facie stage.
26. Criminal prosecution is a serious matter; it
affects the liberty of a person. No greater damage can
be done to the reputation of a person than dragging him
H in a criminal case. In our opinion, the High Court fell into
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1149
[RANJANA PRAKASH DESAI, J.]
grave error in not taking into consideration the A
uncontroverted documents relating to the appellant'~
resignation from the post of Director of the Company.
Had these documents been considered by the High
Court, it would have been apparent that the appellant has
resigned much before the cheques were issued by the B
Company."
32. As already noted in Anita Malhotra, relying on
Harshendra Kumar, this Court quashed the complaint filed
under Section 138 read with Section 141 of the NI Act relying
on the certified copy of the annual return which was a public C
document as per the Companies Act read with Section 74(2)
of the Evidence Act, which established that the appellanU
Director therein had resigned from the Directorship much prior
to the issuance of cheques. This was done despite the fact that
the complaint contained the necessary averments. In our D
opinion, therefore, there could be a case where the High Court
may feel that filing of the complaint against all Directors is abuse
of the process of court. The High Court would be justified in such
cases in quashing the complaint after looking into the material
furnished by the accused. At that stage there cannot be a mini E
trial or a roving inquiry. The material on the face of it must be
convincing or uncontrovered or there must be some totally
acceptable circumstances requiring no trial to establish the
innocence of the Directors.
33. We may summarize our conclusions as follows: F
(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 G
company at the relevant time when the offence was
committed, the Magistrate can issue process
against such Director;
(b) If a petition is filed under Section 482 of the Code
for quashing of such a complaint by the Director, H
1150 SUPREME COURT REPORTS [2014] 10 S.C.R.
A the High Court may, in the facts of a particular case,
on an overall reading of the complaint, refuse to
quash the complaint because the complaint
contains the basic averment which is sufficient to
make out a case against the Director.
B (c) In the facts of a given case, on an overall reading
of the complaint, the High Court may, despite the
presence of the basic averment, quash the
complaint because of the absence of more
particulars about role of the Director in the
c complaint. It may do so having come across some
unimpeachable, uncontrovertible evidence which is
beyond suspicion or doubt or totally acceptable
circumstances which may clearly indicate that the
Director could not have been concerned with the
D issuance of cheques and asking him to stand the
trial would be abuse of the process of the court.
Despite the presence of basic averment, it may
come to a conclusion that no case is made out
against the Director. Take for instance a case of a
E Director suffering from a terminal illness who was
bedridden at the relevant time or a Director who
had resigned long before issuance of cheques. In
such cases, if the High Court is convinced that
prosecuting such a Director is merely an arm-
F twisting tactics, the High Court may quash the
proceedings. It bears repetition to state that to
establish such case unimpeachable,
uncontrovertible evidence which is beyond
suspicion or doubt or some totally acceptable
circumstances will have to be brought to the notice
G
of the High Court. Such cases may be few and far
between but the possibility of such a case being
there cannot be ruled out. In the absence of such
evidence or circumstances, complaint cannot be
quashed;
H
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1151
[RANJANA PRAKASH DESAI, J.]
(d) No restriction can be placed on the High Court's A
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 a/ia the abuse of the process of the Court.
There are no fixed formulae to be followed by the B
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 c
totally acceptable circumstances into account which
may lead it to conclude that no trial is necessary qua
a particular Director.
34. We will examine the facts of the present case in light
of the above discussion. In this case, the High Court answered D
the first question raised before it in favour of the respondents .
.The High Court held that "in the complaint except the ·
averments that the Directors were in charge of and responsible
to the company at the relevant time, nothing has been stated
as to what part was played by them and how they were E
responsible regarding the finances of the company, issuance
of cheque and control over the funds of the company". After
so observing, the High Court quashed the proceedings as
against the respondents. In view of this conclusion, the High
Court did not go into the second question raised before it as F
to whether the Director, who has resigned can be prosecuted
after his resignation has been accepted by the Board of
Directors of the company. Pertinently, in the application filed
by the respondents, no clear case was made out that at the
material time, the Directors were not in charge of and were not G
responsible for the conduct of the business of the company by
referring to or producing any uncontrovertible or unimpeachable
evidence which is beyond suspicion or doubt or any totally
acceptable circumstances. It is merely stated that Sidharth
.Mehta had resigned from the Directorship of the company on
H
1152 SUPREME COURT REPORTS [2014] 10 S.C.R.
A 30/9/2010 but no uncontrovertible or unimpeachable evidence
was produced before the High Court as was done in Anita
Malhotra to show that he had, in fact, resigned long before the
cheques in question were issued. Similar is the case with
Kanhaiya Lal Mehta and Anu Mehta. Nothing was produced to
8 substantiate the contention that they were not in charge of and
not responsible for the conduct of the business of the company
at the relevant time. In the circumstances, we are of the opinion
that the matter deserves to be remitted to the High Court for
fresh hearing. However, we are inclined to confirm the order
c passed by the High Court quashing the process as against
Shobha Mehta. Shobha Mehta is stated to be an old lady who
is over 70 years of age. Considering this fact and on an overall
reading of the complaint in the peculiar facts and circumstances
of the case, we feel that making her stand the trial would be an
abuse of process of the court. It is however, necessary for the
0
High Court to consider the cases of other Directors in light of
the decisions considered by us and the conclusions drawn by
us in this judgment. In the circumstances, we confirm the
impugned order to the extent it quashes the process issued
against Shobha Mehta, an accused in C.C. No.24035 of 2011.
E We set aside the impugned order to the extent it quashes the
process issued against other Directors viz. Kanhaiya Lal Mehta,
Anu Mehta and Siddharth Mehta. We remit the matter to the
High Court. We request the High Court to hear the parties and
consider the matter afresh. We are making it clear that we have
F not expressed any opinion on the merits of the case and nothing
said by us in this order should be interpreted as our expression
of opinion on the merits of the case. The High Court is
requested to consider the matter independently. Considering
the fact that the complaints are of 2011, we request the High
G Court to dispose of the matter as expeditiously as possible and
preferably within six months.
35. The criminal appeals are disposed of in the afore-
stated terms.
H Rajendra Prasad Appeals disposed of.
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "Negotiable Instruments Act"Sign in to search