Holding

The complaint sufficiently alleged that the appellant was in charge of the company’s affairs, making the High Court's refusal to quash the complaint proper.

Summary

Data Access (India) Ltd issued two cheques to Bharat Sanchar Nigam Ltd which were dishonoured for insufficiency of funds. A complaint under Section 138 of the Negotiable Instruments Act was filed against the company and its directors, including the appellant N. Rangachari. The appellant claimed he was an honorary chairman who had resigned before the cheques were issued and therefore sought to quash the complaint under Section 482 of the CrPC. The Supreme Court held that the complaint contained sufficient averments that the appellant was a director and in charge of the company's business, satisfying the requirements of Section 141, and that any defence must be proved at trial. Consequently, the Court affirmed the High Court’s refusal to quash the complaint and dismissed the appeal.

Issues considered

Whether the complaint under Section 138 read with Section 141 of the Negotiable Instruments Act contains adequate averments to proceed against the appellant who claims to be an honorary chairman and not in charge of the company.
Whether the High Court was justified in declining to exercise its inherent power under Section 482 CrPC to quash the criminal complaint.

Legislation cited

Code of Criminal Procedure, 1973s. 482
Companies Act, 1956s. 291
Negotiable Instruments Act, 1881s. 138, s. 141

Subjects

Negotiable Instruments ActSection 138Section 141Company liabilityDirector liabilitySection 482 CrPCQuashing criminal complaintDishonour of chequeCorporate governance

Judgment

~

jf N. RANGACHARI A
v.
SHARATSANCHAR NIGAM LTD.

APRIL 19, 2007

[TARUN CHATTERJEE AND P.K. BALASUBRAMANYAN, JJ.] B

Negotiable Instruments Act, 1881-ss. 141 & 138:

Dishonour of cheques issued by company-Complaint under s. 138 of
the Act-Prosecution sought against Appellant alleging that he was Director c
of the company at the relevant time-Appellant filed petition u/s. 482 CrPC
seeking quashing of the complaint-He contended that he was only an
Honorary Chairman; that he had anyway effectively resigned before issuance
of the cheques in question and hence was not liable-Held: Burden was on
Appellant to show that he was not liable to be convicted-Any restriction D
on his power or existence of any special circumstance that made him not
~
liable was peculiarly within his knowledge and it was for him to establish
the same at the trial-Complaint in question contained adequate averments
to justifY initiation of proceedings against Appellant-Hence, High Court
justified in declining to quash the complaint-Code of Criminal Procedure,
1973-s.482. E
Two cheques issued by a company purportedly in discharge of a pre-
existing liability based on business transaction were dishonoured for in
sufficiency of funds. The payments not having been made, complaint was filed
_.,, under Section 138 of the Negotiable Instruments Act, 1881 against the
.A
accused-company as also Appellant and another person who were alleged to F
the Directors of the accused-company and incharge of its affairs at the
relevant time.

Appellant filed petition before High Court under Section 482, CrPC
seeking quashing of the complaint insofar as it related to him on the ground
G
that he was only a nominated Chairman holding honorary post who w.as never
~ .._
assigned with any financial or business activities of the company and never
constituted a signing authority and that he had effectively resigned before
issuance of the cheques in question, and hence was not liable. He contended

329 H
330 SUPREME COURT REPORTS [2007] 5 S.C.R.

A that the complaint did not contain adequate averments against him and hence r,
was liable to be quashed.

High Court held that the defences sought to be put forward by the
Appellant had to be established at the trial. Taking the view that the complaint
disclosed adequate material for proceeding against the Appellant in terms of
B Section 138 read with Section 141 of the Negotiable Instruments Act, the
High Court dismissed the petition under Section 482, CrPC. Hence the present
appeal

Dismissing the appeal, the Court

c HELD: 1.1. Section 141 of the Negotiable Instruments Act provides that
if the person committing an offence under Section 138 of the Act was 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 be liable to be proceeded against and punished accordingly.
D
In fact, Section 141 !teems sm:h persons to be guilty of such offence, liable to
be procet>ded against and punished for the offence, leaving it to the person
~
concerned, to prove that the offence was C()mmitted by the company without
his knowledge or that he has exercised due diligence to prevent the
commission of the offence. Sub-section (2) of Section 141 also roped in
E Directors, Managers, Secretaries or other officers of the company, if it was
proved that the offence was committed with their consent or connivance.
[Para 12] (338-F-GJ

1.2. A Company, though a legal entity, cannot act by itself but can only
act through its directors. Normally, the Board of Directors act for and ou
F behalf of the company. This is clear from Section 291 of the Companies Act T ~

which provides that subject to the provisions of that Act, the Board of Directors
of a Company shall be entitled to exercise all such powers and to do all such
acts and things as the Company is authorized to exercise and do.
[Para 13) (339-BJ
G 1.3. A person in the commercial world having a transaction with a
company is entitled to presume that the directors of the company are incharge -! •
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 toestablish
it at the trial. It is in that context that Section 141 of the Negotiable
H Instruments Act provides that when the offender is a company, every person,
N. RANGACHAR!v. BHARATSANCHARNIGAMLTD. 331

v who at the time when the offence was committed was incharge of and was A
responsible to the company for the conduct of the business of the company,
shall also be deemed to be guilty of the offence along with the company. 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 incharge of the company.
[Para 13) (339-G-H; 340-A)
B

1.4. A person normally having business or commercial dealings with a
company, would satisfy himself about its creditworthiness and reliability by
' looking at its promoters and Board of Directors and the nature and extent of
its business and its Memorandum or Articles of Association. Other than that, c
he may not be aware of the arrangements within the company in regard to its
management, daily routine, etc. Therefore, when a cheque issued to him by
the company is dishonoured, he is expected only to be aware generally of who
are incharge of the affairs of the company. It is not reasonable to expect him
to know whether the person who signed the cheque was instructed to do so or
whether he has been deprived of his authority to do so when he actually signed D
the cheque. Those are matters peculiarly within the knowledge of the company
and those in charge of it. So, all that a payee of a cheque that is dishonoured
can be expected to allege is that the persons named in the complaint are in
charge of its affairs. The Directors are prima facie in that position.
(Para 14) (340-F-H; 341-A) E

Guide to the Companies Act by A. Ramaiya (Sixteenth Edition) and
Gower and Davies' Principles of Modern Company Law (Seventh Edition),
referred to.

- 'f"'
2.1. In the case on hand, reading the complaint as a whole, it is clear F
that the allegations in the complaint are that at the time at which the two
dishonoured cheques were issued by the company, the appellant and another
were the Directors of the company and were incharge of the affairs of the
company. It is not proper to split hairs in reading the complaint so as to come
to a conclusion that the allegations as a whole are not sufficient to show that
at the relevant point of time the appellant and the other are not alleged to be G
..... persons incharge of the affairs of the company. [Para 18) (342-A-B)
\-

2.2. The High Court has rightly come to the conclusion that it is not a
fit case for exercise of jurisdiction under Section 482, CrPC for quashing
the complaint. In fact, an advertence to Sections 138 and 141 of the Negotiable
·I H
Instruments Act shows that on the other elements of an offence under Section
332 SUPREME COURT REPORTS [2007] 5 S.C.R.

A 138 being satisfied, the burden is on the Board of Directors or the Officers t:",
incharge of the affairs of the company to show that they are not liable to be
convicted. Any restriction on their power or existence of any special
circumstance that makes them not liable is something that is peculiarly within
their knowledge and it is for them to establish at the trial such a restriction
or to show that at the relevant time they were not incharge of the affairs of
B the company. Reading the complaint as a whole, this Court is satisfied that it
is a case where the contentions sought to be raised by the appellant can only
be dealt with after the conclusion of the trial. (Para 19) (342-C-E)

S.MS. Pharmaceuticals Ltd v. Neeta Bhalla and Anr., (2005) 8 SCC >

c 89; Saroj Kumar Poddar v. State (NCT ofDelhi) & Anr., (2007) 2 SCALE 36;
S. V. Majumdar & Ors. v. Gujarat State Fertilizer Co. Ltd & Anr., (2005) 4
SCC 173; Pepsi Foods Ltd & Anr. v. Special Judicial Magistrate & Ors.,
(1998) 5 SCC 749; R.K. Dalmia & Ors. v. The Delhi Administration, (1963) 1
SCR 253; Monaben Ketanbhai Shah & Anr. v. State ofGujarat & Ors., (2004)
7 SCC 15; Rajesh Bajaj v. State ofNCTof Delhi & Ors., Affi (1999) SC 1216;
D Mis Bilakchand Gyanchand Co. v. A. Chinnaswami, AIR (1999) SC 2182 and
Rajneesh Aggarwal v. Amit J. Bhalla, AIR (2001) SC 518, referred to;

CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. 592 of
2007.
E From the Judgment and Order dated 06.03.2006 of the High Court of
Delhi at New Delhi in Cr!. (Misc) No. 804 of2005.

K. Parasaran, Naresh Kaushik, Rao R., Sathish Dayanand, Parag Gopal,
Arnita Kalka! and Lalita Kaushik for the Appellant.
F Shalini Kumar and Neeru Vaid for the Respondent. .,.. """
The Judgment of the Court was delivered by

P.K. BALASUBRAMANYAN, J. I. Leave granted.
G 2. Heard both sides.

3. On behalf of the Data Access (India) Limited, two cheques were ~

issued to the respondent Bharat Sanchar Nigam Limited (hereinafter referred
to as, "B.S.N.L."). The cheques were dated 31.8.2004. The cheques were duly
presented by the B.S.N .L. but were dishonoured for insufficiency of funds.
H
N. RANGACHARI v. BHARATSANCHARNIGAMLTD [P.K. BALASUBRAMANYAN,J.] 333

B.S.N.L. thereupon issued requisite notices calling upon the Data Access A
(India) Limited to pay the amounts due under the cheques. The payments not
having been made, B.S.N.L. filed a compliant under Section 138 of the Negotiable
Instruments Act.

4. In the complaint, B.S.N.L. alleged that the cheques were issued to it
by the Data Access (India) Limited in discharge of a pre-existing liability B
based on the business transactions between the companies. The appellant
herein and respondent No. 2 in the complaint were the Directors of respondent
No. I Company and they were in charge of and responsible for the conduct
of the business of Data Access (India) Limited. The relevant statement in the
complaint read: C
"That.accused No. 1 is a company incorporated under the Companies
Act. Accused Nos. 2 and 3 are its Directors. They are incharge of and
responsible to accused No. I for conduct of business of accused No.
1 Company. They are jointly and severally liable for the acts of
accused No. I." D
The complaint also stated that in response to the notice issued by B.S.N .L.,
a reply had been sent claiming that the appellant was no longer the Chairman
or Director of Data Access (India) Limited and accused No. 2 was not aware
of the issuance of the cheques. These statements were false and by not
keeping sufficient funds in their account and failing to pay the cheque E
amount on the service of the notice, all the accused committed an offence as
contemplated in Section 138 of the Negotiable Instruments Act and they were
liable to be proceeded against. The complaint also asserted that all the
accused were guilty of the offence in terms of Section 138 of the Negotiable
Instruments Act and were liable to be punished therefor.
F
5. The appellant herein moved the High Court under Section 482 of the
Code of Criminal Procedure seeking the quashing of the complaint insofar as
it related to him. The appellant pleaded that he was nominated as Honorary
Chairman without any remuneration, sitting fee etc. by the investors and
promoters of the Company of Data Access (India) Limited on 24.7.2004 and G
he was designated as Chairman of the Company. Being a nominated Chairman
and holding an Honorary post in the Company, he was never assigned with
any of the Company's financial or other business activities. He was the
Chairman for name sake and was never entrusted with any job or business
or constituted a signing authority. He had resigned effectively on 26.8.2004
when problems between the promoters and investors of Data Access (India) H
334 SUPREME COURT REPORTS [2007] 5 S.C.R.

A Limited started developing. The two cheques that were the subject matter of ...
the complaint, were dated 31.8.2004, after the appellant had effectively resigned.
"--
He had not signed those cheques. He was not liable. According to him, the
Data Access (India) Limited had two Managing Directors at the relevant time
and they were the ones who were invested with substantial powers of
management of the Company and as such the Managing directors were
B involved in the day to day affairs of the Company and not himself, who had
only acted for a short period as Honorary Chairman. The complaint did not
contain adequate averments to justify initiation of a criminal proceeding
against him and hence the complaint was liable to be quashed. ~

c Section6. 482
On behalf of B.S.N.L., it was contended that the Petition under
of the Code of Criminal Procedure was not maintainable and that
the questions sought to be raised by the appellant were questions that had
to be decided at the trial. The complaint disclosed sufficient materials justifying
the commencement of the proceedings against Data Access (India) Limited
and the other two accused including the appellant. The appellant who was
D the Chairman of the Data Access (India) Limited was incharge of and
responsible to the Company for the conduct of its business, and no occasion
had arisen for quashing the complaint. The question whether a person is
incharge of and responsible for the conduct of the business of the Company,
is to be adjudged during the trial on the basis of the materials to be placed
on record by the parties. That could not be decided at the stage of a motion
E under Section 482 of the Code of Criminal Procedure.

7. The High Court, on going through the complaint in the context of
Sections 138 and 141 of the Negotiable Instruments Act, came to the conclusion
that the court could not decide the pleas put forward by the appellant in
F dealing with a petition filed under Section 482 of the Code of Criminal Procedure
and that the defe11ces sought to be put forward by the accused had to be
established at the trial. Taking the view that the complaint disclosed adequate
......
-
material for proceeding against the appellant in terms of Section 138 read with
Section 141 of the Negotiable Instruments Act, the High Court refused to
accede to the prayer of the appellant and dismissed the application filed under
G Section 482 of the Code of Criminal Procedure. Challenging the said order of
the High Court, this appeal is filed by the appellant. -'
8. Learned Senior Counsel for the appellant brought to our notice a
number of decisions of this Court on what should constitute sufficient
allegations in a complaint under Section 138 of the Negotiable Instrument Act
H
, N. RANGACHARI v. BHARAT SANCHAR NIGAM LTD. [P.K. BALASUBRAMANYAN, J.]

when a prosecution is sought against a Company and its officers, in terms
335

of Section 141 of the said Act. Learned counsel placed considerable reliance
A

on the decision of this Court in S.MS. Pharmaceuticals Ltd. v. Nee/a Bhalla
& Anr., [2005] 8 S.C.C. 89. Therein, this Court observed:

"In the present case, we. are concerned with criminal, liability on
account of dishonour of cheque. It primarily falls on the drawer B
company and is extended to officers of the Company. The normal rule
.-.j
in the cases involving criminal liability is against vicarious liability,
-< that is, no one is to be held criminally liable for an act of another. This
normal rule is, however, subject to exception on account of specific
provision being made in statutes extending liability to others. Section
141 of the Act is an instance of specific provision which in case an
c
offence under Section 138 is committed by a Company, extends criminal
liability for dishonour of cheque to officers of the Company. Section
141 contains conditions which have to be satisfied before the liability
can be extended to officers of a company. Since the provision creates
criminal liability, the conditions have to be strictly complied with. The D
conditions are intended to ensure that a person who is sought to be
made vicariously liable for an offence of which the principal accused
is the 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. In other words, persons who had nothing to do
with the matter need not be roped in. A company being a juristic
E
person, all its deeds and functions are result of acts of others.
Therefore, officers of a Company who are responsible for acts done
in the name of the Company are sought to be made personally liable
for acts which result in criminal action being taken against the Company.
..... It makes every person who at the time the offence was committed, was F
incharge of and was responsible to the Company for the conduct of
business of the Company, as well as the Company, liable for the
offence. The proviso to the sub-section contains an escape route for
persons who are able to prove that the offence was committed without
their knowledge or that they had exercised all due diligence to prevent
commission of the offence." G
~

After referring to a number of earlier decisions, this Court summed up the
legal position and laid down:

"It is necessary to specifically aver in a complaint under Section 141
that at the time the offence was committed, the p!!rson accused was H
336 SUPREME COURT REPORTS [2007) 5 S.C.R.

A in charge of, and responsible for the conduct of business of the
company. This avennent is an essential requirement of Section 141
and has to be made in a complaint. Without this avennent being made
in a complaint, the requirements of Section 141 cannot be said to be
satisfied."

B Dealing with the question whether a Director of a Company would be deemed
to be in charge of, or 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, this Court held:

"The answer to question posed in sub-para (b) has to be in negative.
c 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 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
D 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."

Answering the question whether even in the absence of avennents the
signatory of the cheque or the managing directors could be taken to be in
E charge of the Company and responsible to the Company for the conduct of
its business and could be proceeded against, the answer was as follows:

"The answer to question (c) has to be in affinnative. The question
notes that the Managing Director or Joint Managing Director would
be admittedly in charge of the company and responsible to the company
F for conduct of its business. When that is so, holders of such positions
in a company become liable under Section I41 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 covered under Section
141. So far as signatory of a cheque which is dishonoured is concerned,
G he is clearly responsible for the incriminating act and will be covered
under Sub-section (2) of Section 141."

9. It was submitted by learned Senior Counsel for the appellant that the
allegations in the complaint against the appellant did not contain sufficient
H avennents to justify the issue of process to the appellant and therefore the
N. RANGACHARI v. BHARATSANCHARNIGAMLTD. [P.K. BALASUBRAMANYAN,J.) 337
..... complaint ought to be quashed. Learned counsel also relied heavily on the A
decision in Saroj Kumar Poddar v. State (NCT of Delhi) & Anr., (2007) 2
SCALE 36, wherein two learned judges of this Court held that the complaint
in that case did not satisfy the requirements of Section 138 read with Section
141 of the Negotiable Instruments Act. Learned counsel referred us to
paragraphs 13 to 18 of that decision with particular reference to the allegations
in the complaint in that case and submitted that in the case on hand also, the B
complaint was along the same lines and read in the context of that decision,
.... it must be held that no adequate material was disclosed for proceeding
-< against the appellant on the complaint.

10. Learned counsel for B.S.N.L., on the other hand, submitted that the
complaint contained adequate averments justifying the initiation of prosecution
c
against the appellant for the offence under Section 138 of the Negotiable
Instruments Act and the High Court was right in refusing to quash the
complaint under Section 482 of the Code of Criminal Procedure leaving it to
the appellant to establish his defence at the trial. Learned counsel relied on
S. V. Muzumdar & Ors. v. Gujarat State Fertilizer Co. Ltd. & Anr., [2005] 4 D
S.C.C 173 in support. In his reply, learned Senior Counsel for the appellant
referred to Pepsi Foods Ltd & Anr. v. Special Judicial Magistrate & Ors.,
[1998] 5 S.C.C. 749 and submitted that an application of mind was needed
before the issuance of process and on the averments in the complaint in this
case no process could have been issued against the appellant. He therefore
reiterated that the complaint was liable to be quashed.
E

11. The Law Merchant treated negotiable instruments as instruments
that oiled the wheels of commerce and facilitated quick and prompt deals and
transactions. This continues to be the position as now recognized by
er legislation, though possibly a change is taking place with the advent of credit
F
cards, debit cards and so on. It was said that negotiable instruments are
merely instruments of credit, readily convertible into money and easily passable
from one hand to another. With expanding commerce, growing demand for
money could not be met by mere supply of coins and the instrument of credit
took the function of money which they represented and thus became by
degrees, articles of traffic. A man dared not dishonour his own acceptance G
of a bill of exchange, lest his credit be shaken in the commercial world. The
Negotiable lnsrruments Act, 1881 is understood to be an enactment codifying
the law on the subject. A cheque is an acknowledged bill of exchange that
is readily accepted in lieu of payment of money and it is negotiable.
H
338 SUPREME COURT REPORTS [2007] S S.C.R.

A 12. By the fall in moral standards, even these negotiable instruments like
cheques issued, started losing their creditability by not being honoured on
presentment. It was found that an action in the civil court for collection of
the proceeds of a negotiable instrument like a cheque tarried, thus defeating
the very purpose of recognizing a negotiable instrument as a speedy vehicle
of commerce. It was in that context that Chapter VII was inserted in the
B Negotiable Instruments Act by the Banking, Public Financial Institutions and
Negotiable Instruments Laws (Amendment) Act, 1988 (Act 66of1988) with
effect from 1.4.1989. The said Act inserted Sections 138 and 142 in the
Negotiable Instruments Act. The objects and reasons for inserting the Chapter
was:
c "to enhance the acceptability of cheques in settlement of liabilities by
making the drawer liable for penalties in case of bouncing of cheques
due to insufficiency of funds in the accounts or for the reason that
it exceeds the arrangements made by the drawer, with adequate
safeguards to prevent harassment of honest drawers ... "
D
While Section 138 made a person criminally liable on dishonour of a cheque
for insufficiency of funds or the circumstances referred to in the Section and
on the conditions mentioned therein, Section 141 laid down a special provision
in respect of issuance of cheques by companies and commission of offences
by companies under Section 138 of the Negotiable Instruments Act. Therein,
E it was provided that if the person committing an offence under Section 138
of the Act was 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 be liable to be proceeded against
F and punished accordingly. The scope of Section 141 has been authoritatively
discussed in the decision in S.MS. Pharmaceuticals Ltd (supra) binding on
us and there is no scope for redefining it in this case. Suffice it to say, that
a prosecution could be launched not only against the company en behalf of
which the cheque issued has been dishonoured, but it could also be initiated
against every person who at the time the offence was committed, was in
G charge of and was responsible for the conduct of the business of the company.
In fact, Section 141 deems such persons to be guilty of such offence, liable
to be proceeded against and punished for the offence, leaving it to the person
concerned, to prove that the offence was committed by the company without
his knowledge or that he has exercised due diligence to prevent the commission
H of the offence. Sub-section (2) of Section 141 also roped in Directors, Managers,
N. RANGACHARI v. BHARATSANCHARNJGAMLTD. [P.K. BALASUBRAMANYAN, J.] 339
~ Secretaries or other officers of the company, if it was proved that the offence A
was committed with their consent or connivance.

13. A Company, though a legal entity, cannot act by itself but can only
act through its directors .. Normally, the Board of Directors act for and on
behalfofthe company. This is clear from Section 291 of the Companies Act
which provides that subject to the provisions of that Act, the Board of B
Directors of a Company shall be entitled to exercise all such powers and to
. -J
do all such acts and things as the Company is authorized to exercise and do .
; Palmer described the position thus:

"A company can only act by agents, and usually the persons by
whom it acts and by whom the business of the company is carried on c
or superintended are termed directors .... "

It is further stated in Palmer that:

"Directors are, in the eye of the law, agents of the company for which
they act, and the general principles of the law of principal and agent D
regulate in most respects the relationship of the company and its
directors."

The above two passages were quoted with approval in R.K. Dalmia & Ors.
v. The Delhi Administration, (1963] 1 S.C.R. 253 at page 300. In Guide to the
Companies Act by A. Ramaiya (Sixteenth Edition) this position is summed up E
thus:

"All the powers of management of the affairs of the company are
vested in the Board of Directors. The Board thus becomes the working
organ of the company. In their domain of power, there can be no
-:r interference, not even by shareholders. The directors as a board are
F
exclusively empowered to manage and are exclusively responsible for
that management."

Therefore, a person in the commercial world having a transaction with a
company is entitled to presume that the directors of the company are incharge
G
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 context that Section 141 of the Negotiable
Instruments Act provides that when the offender is a company, every person,
who at the time when the offence was committed was incharge of and was
responsible to the company for the conduct of the business of the company, H
340 SUPREME COURT REPORTS [2007] 5 S.C.R.

A shall also be 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 incharge of the company.
In Gower and Davies' Principles of Modem Company Law (Seventh Edition),
B the theory behind the idea of identification is traced as follows:

"It is possible to find in the cases varying formulations of the under-
lying principle, and the most recent definitions suggest that the courts
are prepared today to give the rule of attribution based on identification
a somewhat broader scope. In the original formulation in the Lennard's
Carrying Company case Lord Haldane based identification on a person
c "who is really the directing mind and will of the 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 the Meridian Global case as a misleading
"general metaphysic of companies". The true question in each case
D 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."

But as has already been noticed, the decision in S.MS. Pharmaceuticals Ltd.
(supra) binding on us, has postulated that a director in a company cannot be
E deemed to be incharge of and responsible to the company for the conduct
of his business in the context of Section 141 of the Act. Bound as we are by
that decision, no further discussion on this aspect appears to be warranted.

14. A person normally having business or commercial dealings with a
F company, would satisfy himself about its creditworthiness and reliability by
looking at its promoters and Board of Directors and the nature and extent of
its business and its Memorandum or Articles of Association. Other than that,
he may not be aware of the arrangements within the company in regard to
its management, daily routine, etc. Therefore, when a cheque issued to him
by the company is dishonoured, he is expected only to be aware generally
G of who are incharge of the affairs of the company. It is not reasonable to
expect him to know whether the person who signed the cheque was instructed
to do so or whether he has been deprived of his authority to do so when he
actually signed the cheque. Those are matters peculiarly within the knowledge
of the company and those in charge of it. So, all that a payee of a cheque
that is dishonoured can be expected to allege is that the persons named in
H the complaint are in charge of its affairs. The Directors are Prima facie in that
N. RANGACHARI v. BHARAT SANCHAR NIGAM LTD. [!'.K. BALASUBRAMANYAN, J.) 341

position. A
15. In fact, in an earlier decision in Monaben Ketanbhai Shah & Anr.
v. State ofGujarat & Ors., [2004 7 S.C.C. 15, two learned judges of this Court
noticed that:

"The laudable object of preventing bouncing of cheques and B
sustaining the credibility of commercial transactions resulting in
enactment of Sections 138 and 141 has to be borne in mind."

16. In the light of the ratio in S.MS. Pharmaceuticals Ltd. (supra) what
is to be looked into is whether in the complaint, in addition to asserting that
the appellant and another are the directors of the company, it is further alleged C
that they are incharge of and responsible to the company for the conduct of
the business of the company. We find that such an allegation is clearly made
in the complaint which we have quoted above. Learned Senior Counsel for
the appellant argued that in Saroj Kumar Poddar case (supra), this Court had
found the complaint unsustainable only for the reason that there was no D
specific averment that at the time of issuance of the cheque that was
dishonoured, the persons named in the complaint were incharge of the affairs
of the company. With great respect, we see no warrant for assuming such a
position in the co:itext of the binding ratio in S.MS. Pharmaceuticals Ltd.
(supra) and in view of the position of the Directors in a company as explained
~~ E
17. In Rajesh Bajaj v. State of NCTof Delhi & Ors., A.LR. (1999) S.C.
1216, two learned judges of this Court stated:

"For quashing an FIR (a step which is permitted only in extremely rare
cases) the information in the complaint must be so bereft of even the p
basic facts which are absolutely necessary for making out the offence."

In Mis Bilakchand Gyanchand Co. v. A Chinnaswami, A.LR. (1999) S.C.
2182, this Court held that a complaint under Section 138 of the Act was not
liable to be quashed on the ground that the notice as contemplated by
Section 138 of the Act was addressed to the Director of the Company at its G
""· office address and not to the Company itself. The view was reiterated in
Rajneesh Aggarwal Vs. Amit J. Bhalla, A.LR. (2001) s:c. 518. These decisions
indicate that too technical an approach on the sufficiency of notice and the
contents of the complaint is not warranted in the context of the purpose
sought to be achieved by the introduction of Sections 138 and 141 of the Act. H
342 SUPREME COURT REPORTS [2007) 5 S.C.R.

A 18. In the case on hand, reading the complaint as a whole, it is clear that
the allegations in the complaint are that at the time at which the two
dishonoured cheques were issued by the company, the appellant and another
were the Directors of the company and were incharge of the affairs of the
company. It is not proper to split hairs in reading the complaint so as to come
B to a conclusion that the allegations as a whole are not sufficient to show that
at the relevant point of time the appellant and the other are not alleged to be
persons incharge of the affairs of the company. Obviously, the ·complaint
refers to the point of time when the two cheques were issued, their presentment,
dishonour and failure to pay in spite of notice of dishonour. We have no
hesitation in overruling the argument in that behalf by the learned Senior
C Counsel for the appellant.

19. We think that, in the circumstances, the High Court has rightly come
to the conclusion that it is not a fit case for exercise of jurisdiction under
Section 482 of the Code of Criminal Procedure for quashing the complaint. In
fact, an advertence to Sections 138 and 141 of the Negotiable Instruments Act
D shows that on the other elements of an offence under Section 138 being
satisfied, the burden is on the Board of Directors or the Officers incharge of
the affairs of the company to show that they are not liable to be convicted.
Any restriction on their power or existence of any special circumstance that
makes them not liable is something that is peculiarly within their knowledge
E and it is for them to establish at the trial such a restriction or to show that
at the relevant time they were not incharge of the affairs of the company.
Reading the complaint as a whole, we are satisfied that it is a case where the
contentions sought to be raised by the appellant can only be dealt with after
the conclusion of the trial.

p 20. We therefore affirm the decision of the High Court and dismiss this
appeal. We make it clear that the case will have to be tried and disposed of
in accordance with law on the basis of the evidence that may be adduced.

B.B.B. Appeal dismissed.