MALWA COTTON & SPINNING MILLS LTD.versusVIRSA SINGH SIDHU & ORS.

                        [2008] 12 S.C.R. 68
                                                                  j_

A          MALWA COTTON & SPINNING MILLS LTD.
                                v.
                  VIRSA SINGH SIDHU & ORS.
               (Criminal Appeal No. 1265 of 2008)
                       AUGUST 13, 2008
B                                                                  ,...._
        (OR. ARIJIT PASAYAT AND DR. MUKUNDAKAM
                       SHARMA, JJ.)

          Code of Criminal Procedure, 1973; s. 482/Negotiable
c   Instruments Act, 1881; Ss.138 & 141:
        Dishonour of cheques - Accused director allegedly re-
  signed before Cheques were issued - Quashing of proceed-
  ing against director by High Court in exercise of power under
  s. 482 Cr.PC. - Correctness of - Held: Factual disputes in~
D valved -Acceptance of resignation of the director by the com-
  pany and effect of delayed intimation about _such resignation
  to Registrars of Companies are matters in respect of which
  evidence has to be led - Under the circumstances, High Court
  was not justified in quashing the proceedings.
E
        The question which arose for consideration in these
  appeals was as to whether the High Court was justified
  in quashing the proceedings against respondent No.1
  which was initiated against him under s.138 of the Nego-
  tiable Instruments Act for dishonour of Cheques allegedly
F issued by the company, in which respondent No.1 was             ¥-
  working as director. Respondent No.1 allegedly resigned
  from directorship of the Company before issuance of the
  Cheques.
         Appellant contended that respondent No.1 claims to
G
    have resigned before issuance of cheques. However, in-
    timation in terms of Form No.32 to the Registrar of Com-
    panies was filed much after the cheques were issued; and
    that claim of respondent No.1 whether factually correct
H                               68
           MALWA COTTON & SPINNING MILLS LTD. v. VIRSA           69
                      SINGH SIDHU & ORS.

       or not would have been established in trial and the High A
       Court could not have passed the impugned judgment
       while dealing with the application under Section 482 of
       the Code of Criminal Procedure, 1973.
             Respondent No.1 submitted that the High Court was
       justified in its view that respondent No.1 had intimated       8
       the company about his desire to resign. If the company
       delayed in submitting the requisite form before the Reg-
       istrar of Companies, he cannot be made to suffer.
            Allowing the appeals, the Court                           c
             HELD: Factual disputes are involved. What was the
        effect of delayed presentation before the Registrar of
        Companies is essentially a matter of trial. Whether respon-
        dent No.1 had intimated the company and whether there
        was any resolution accepting his resignation are matters D
y     . in respect of which evidence has to be led. Therefore, the

        High Court was not justified Jn its view. So far as allega-
        tions against the Directors are concerned about their
        position in the company the complaint specifically con-
        tained the averments regarding the position of the ac- E
        cused Directors in the company. Therefore, the High
        Court was not justified in quashing the proceedings
        against respondent No.1. (Paras - 6, 7 & 11) [71,E-F; 75,D]
             S. V Muzumdar v. Gujarat State Fertilizer Co. Ltd. and
-./    Anr. (2005) 4 SCC 173 and N. Rangachari v. Bharat Sanchar      F
       Nigam Ltd. (2007) 5 sec 108 - relied on.
                          Case Law Reference
            (2005) 4 SCC 173      Relied on     Para - 9
            (2007) 5 SCC 108      Relied on     Para - 10             G

            CRIMINALAPPELLATE JURISDICTION: Criminal Appeal
       No. 1265 of 2008
            From the final Order dated 10.2.2005 of the High Court of
       Punjab and Haryana at Chandigarh in Crl. Misc. No. 52153-M/2002 H
    70        SUPREME COURT REPORTS                [2008] 12 S.C.R.

                                                                       1'-
A                                  WITH
         CriminalAppeal Nos. 1266, 1267, 1268, 1269, 1270, 1271
    and 1272 of 2008
          San jay Kapur, Shubhra Kapur, Raj iv Kapu( and Arti Singh
B   for the Appellant.
         P.P. Singh for the Respondents.
         The Judgment of the Court was delivered by

         Dr. ARIJIT PASAYAT, J.
c
         SLP (Crl.) 6049/2005
         1: Leave granted.

         2. Challenge in this appeal is to the order passed by a
   learned Single Judge of the Punjab and Haryana High Court
D·
   accepting the prayer of respondent No.1 for quashing the pro-        :,,.
   ceedings pending before the Judicial Magistrate, First Class,
   Ludhiana. The proceedings related to the complaint filed by the
   appellant alleging commission of offence punishable under
   Section 138 of the Negotiable Instruments Act, 1881 (in short
E
   the 'Act'). In all, 8 petitions were filed which were disposed of
   by the common.judgment.

          3. The present appeals relate to Criminal Miscellaneous
    No.52153 of 2002 and connected cases. The High Court
F   quashed the proceedings primarily on the ground that respon-
                                                                       )<-.
    dent No.1-Virsa Singh Sidhu in the first case had resigned from
    the Directorship before the cheques were issued. The other
    petitions were allowed on the ground that there were some gen-
    eral allegations that all Directors were responsible.
G      4. Learned counsel for the appellant submitted that the
  High Court's ·judgment is clearly unsustainable. So far_ as re-        ~ ~




  spondent No.1 is concerned he claims to have resigned on
  2.4.1999 whereas cheques were issued on various dates vis
  in December 2000 and February 2001. It is pointed out that the
H Form No.32 which was required to be filed with the Registrar of
            MALWA COTTON & SPINNING MILLS LTD. v. VIRSA                  71
             SINGH SIDHU & ORS. [DR. ARIJIT PASAYAT, J.]

  )    Companies was filed on 5.7.2001 i.e. much after the cheques            A
       were issued. Whether in fact the respondent No.1 's claim to have
       resigned was factually correct would have been established in
       trial and the High Court could not have passed the impugned
       judgment while dealing with the application under Section 482 of
       the Code of Criminal Procedure, 1973 (in short the 'Code')? It is      B
       further pointed out that the High Court was not justified in holding
1      th.at there was no specific allegation against other accused per-
       sons. With reference to the complaint it was pointed out that spe-
       cific allegation is to the effect that the accused persons were in
       charge of day to day management work. In any event, this is not a      c
       question which could have been gone into in a proceeding under
       Section 482 of Code. It is a matter of trial.
             5. Learned counsel for respondent No.1 on the other hand
       submitted that the High Court was justified in its view that re-
       spondent No.1 had intimated the company about his desire to            D
       resign. If the company delayed in submitting the requisite form
'f..   before the Registrar of Companies, he cannot be made to suffer.
             6. As rightly contended by learned counsel for the appellant
       factual disputes are involved. What was the effect of delayed pre-
       sentation before the Registrar of Companies is essentially a           E
       matter of trial. Whether respondent No.1 had intimated the com-
       pany and whether there was any resolution accepting his resig-
       nation are matters in respect of which evidence has to be led.
       Therefore, the High Court was not justified in its view.
                                                                              F
             7. So far as allegations against the Directors are con-
       cerned about their position in the company the complaint spe-
       cifically contained the averments regarding the position of the
       accused Directors in the company.
             8. At this juncture, it would be relevant to take note of cer-   G
       tain observations made by this Court in various cases.
             9. In S. V Muzumdar v. Gujarat State Fertilizer Co. Ltd.
       and Anr. (2005 (4) SCC 173), it was inter-alia observed as fol-
       lows:
                                                                              H
    72        SUPREME COURT REPORTS                  [2008] 12 S.C.R.


A        ,"3. The facts as projected by the respondents in the           ·j__
          complaint were to the effect that the respondent no.1
          (t:iereinafter referred to as the 'complainant') supplied
          goods on credit to M/s Garware Nylons Ltd. (hereinafter
          referred to as the 'Company') (accused no.14). Cheques
B         issued by the company were not honoured by the drawee
          bank on the ground of insufficient funds. Payments were
          not made even after legal notices. There were 14 accused          -.,...__
          persons including the company named in the complaint.
          Some of the accused persons were Directors and while
c         others were employees. Learned Chief Judicial
          Magistrate, Vadodara after recording statement of
          marketing manager who had filed the complaint for himself
          and on behalf of the complainant-company, issued
          summons to all the accused persons for facing trial for
          alleged commission of offences punishable under Section                      t-
D
          138 of the Act read with Sections 420 and 114 of the                         I
          Indian Penal Code, 1860 (in short the 'IPC'). The order
          issuing summons was challenged by filing criminal revision       >r          r
          applications which were dismissed by order dated
          21.3.1996. Said common judgment and order was
E         challenged before the High Court by filing special criminal
          applications and these applications were permitted to be
          withdrawn to enable the appellants to move applications
          before the learned Chief Judicial Magistrate as stated by
          the petitioners. Application was filed with prayer to drop
F         proceedings. That application was rejected by order dated
          21.8.1997. Same was questioned before the High Court.
                                                                           ~
          The challenge before the High Court was primarily on the
          ground that there was no material to show that the accused
          persons at the time of offence as allegedly committed
G        were in charge and/or responsible to the company for the
          conduct of the business as required under Section 141 (1)
          of the Act. It was also submitted that the deeming provision          k
          under sub-section (2) of Section 141 which covers persons
          with whose consent or connivance or any attributable
H         negligence for commission of the offence by the company
    MALWA COTTON & SPINNING MILLS LTD. v. VIRSA                 73
     SINGH SIDHU & ORS. [DR. ARIJIT PASAYAT, J.]

    was also not applicable. The High Court did not accept           A
J
    the pleas and held that the controversy was to be
    adjudicated at the trial. It considered the petition to be
    unacceptable attempt to stall the criminal proceedings at
    the threshold.
    xx               xx                     xx                       B

    8. We find that the prayers before the courts below
    essentially were to drop the proceedings on the ground
    that the allegations would not constitute a foundation for
    action in terms of Section 141 of the Act. These questions c
    have to be adjudicated at the trial. Whether a person is in
    charge of or is responsible to the company for conduct of
    business is to be adjudicated on the basis of materials to
    be placed by the parties. Sub-section (2) of Section 141
    is a deeming provision which as noted supra operates in D
    certain specified circumstances. Whether the
    requirements for the application of the deeming provisio·n
    exist or not is again a matter for adjudication during trial.
    Similarly, whether the allegations contained are sufficient
    to attract culpability is a matter for adjudication at the trial.
                                                                      E
    9. Under Scheme of the Act, if the person committing an
    offence under Section 138 of the Act is a company, by
    application of Section 141 it is deemed that every person
    who is in charge of and responsible to the company for
    conduct of the business of the company as well as the F
    company are guilty of the offence. A person who proves
    that the offence was committed without his knowledge or
    that he had exercised all due diligence is exempted from
    becoming liable by operation of the proviso to sub-section
    (1 ). The burden in this regard has to be discharged by the G
    accused.
    10. The three categories of persons covered by Section
    141 are as follows:

    (1)   The company who committed the offence.
                                                                     H
    74         SUPREME COURT REPORTS                   [2008] 12 S.C.R.


A        (2)   Everyone who was in charge of and was responsible
               for the business of the company.
                                                                            ·-
         (3)   Any other person who is a director pr a manager or
               a secretary or officer of the company with whose
               connivance or due to whose neglect the company
B              has committed the offence.
          11. Whether or not the evidence to be led would establish           ..,.._
    the accusations is a matter for trial. It needs no reiteration that
    proviso to sub-section (1) of Section 141 enables the accused
c   to prove his innocence by discharging the burden which lies on
    him."
         10. In N. Rangachari v. Bharat Sanchar Nigam Ltd. (2007
    (5) sec 108), it was observed as follows:
         "19. Therefore, a person in the commercial world having
D
         a transaction with a company is entitled to presume that
         the Directors of the company are in charge of the affairs
         of the company. If any restrictions on their powers are            ·>!'

         placed by the memorandum or articles of the company, it
         is for the Directors to establish it at the trial. It is in that
E
         context that Section 141 of the Negotiable lnstrumentsAct
         provides that when the offender is a company, every person,
         who at the time when the offence was committed was in
         charge of and was responsible to the company for the
         conduct of the business of the company, shall also be
F        deemed to be guilty of the offence along with the company.
         It appears to us that an allegation in the complaint that the
                                                                            ~-
         named accused are Directors of the company itself would
         usher in the element of their acting for and on behalf of the
         company and of their being in charge of the company. In
G        Gower and Davies' Principles of Modern Company Law
         (17th Edn.), the theory behind the idea of identification is
         traced as follows:                                                   ~
                                                                              -..;


               "It is possible to find in the cases varying formulations
               of the underlying principle, and the most recent
H
     MALWA COTTON & SPINNING MILLS LTD. v. VIRSA               75
      SINGH SIDHU & ORS. [DR. ARIJIT PASAYAT, J.]

           definitions suggest that the courts are prepared today    A
           to give the rule of attribution based on identification
           a somewhat broader scope. In the original formulation
           in Lennard's Carrying Company case (1915 AC 705
           (HL) Lord Haldane based identification on a person
           'who is really the directing mind and will of the         B
           corporation, the very ego and centre of the personality
           of the corporation'. Recently, however, such an
           approach has been castigated by the Privy Council
           through Lord Hoffmann in Meridian Global case
           (1995 (2) AC ·500 (PC) as a misleading 'general           c
           metaphysic of companies'. The true question in each
           case was who as a matter of construction of the
           statute in question, or presumably other rule of law,
           is to be regarded as the controller of the company
         ·,for the purpose of the identification rule."
                                                                     0
     11. Therefore, the High Court was not justified in quashing
the proceedings so far as respondent No.1 in the first case is
concerned. The appeal is allowed.
     12. In view of the order passed in Criminal Appeal arising
out of SLP (Crl.) No.6049/2005, where details have been indi-        E
cated, other appeals deserved to be allowed. The impugned
order of the High Court in each case is set aside.
S.K.S.                                        Appeals allowed.