Supreme Court of India
NATIONAL SMALL INDUSTRIES CORP. LTD.versusHARMEET SINGH PAINTAL AND ANR.
- Citation
- 2010 INSC 98
- Decided
- 15 February 2010
- Disposal
- Dismissed
- Bench
- P SATHASIVAM
Holding
Only persons who, at the time of the offence, were in charge of and responsible for the conduct of the company's business can be held vicariously liable under Section 141, and unspecific averments in the complaint are insufficient.
Summary
The appellant, National Small Industries Corporation Ltd., filed criminal complaints under Section 138 read with Section 141 of the Negotiable Instruments Act against the managing director and a director of the defendant company for dishonoured cheques. The High Court quashed the summoning orders against the director(s) on the ground that the complaint did not specifically allege how they were in charge of or responsible for the company's business. The Supreme Court examined the scope of Section 141, holding that vicarious liability attaches only to persons who, at the time of the offence, were actually in charge of and responsible for the conduct of the business, and that the complaint must contain clear, specific averments to that effect. It further noted that merely being a director, or having ceased to be a director before the offence, does not create liability. Applying these principles, the Court found no specific allegation against the respondents and affirmed the High Court’s order. Consequently, all the appeals were dismissed.
Issues considered
- Whether a director who is not in‑charge of and not responsible for the conduct of the company's business can be held vicariously liable under Section 141 of the Negotiable Instruments Act.
- Whether the complaint must specifically aver that the director was in‑charge of and responsible for the conduct of the business to attract liability under Section 141.
- Whether the High Court was justified in quashing the summoning orders on the ground of unspecific averments.
- Whether a person who ceased to be a director before the alleged offence can be prosecuted under Section 141.
Legislation cited
- Companies Act, 1956s. 291
- Negotiable Instruments Act, 1881s. 138, s. 141, s. 142
Subjects
Negotiable Instruments ActSection 138Section 141vicarious liabilitydirectorscompany lawcriminal procedurecomplaint drafting
Judgment
(2010) 2 S.C.R. 805
A
NATIONAL SMALL INDUSTRIES CORP. LTD.
v.
HARMEET SINGH PAINTAL AND ANR.
(Criminal Appeal No. 320-336 of 2010 )
B
FEBRUARY 15, 2010
[P. SATHASIVAM AND H.L. DATTU, JJ.]
Negotiable Instruments Act, 1881: ss.138, 141 -
Vicarious liability of Directors of a Company - Held: Director C
of a Company who is not in-charge of and is not responsible
for the conduct of the business of the company would not be
liable for a criminal offence under s.138 - s.141 is a penal
provision creating vicarious liability, and must be strictly
construed - Complaint under s. 138 must spell out as to how D
and in what manner the accused-director was in-charge of or
was responsible to the accused company for the conduct of
its business - If averments made against accused-Directors
are unspecific and general and no particular role is assigned
to them, then vicarious liability in accordance with s.141 E
cannot be fastened on them - On facts, in the absence of
specific averment as to the role of the respondents and
particularly since they were in no way connected with the affairs
of the company, the summoning orders against them were
rightly quashed by High Court - Companies Act, 1956 - F
s.291.
The question which arose for consideration in these
appeals was whether High Court was justified in
quashing the summoning orders passed by trial court
against accused-Directors under Section 138 of the G
Negotiable Instruments Act, 1881, on the ground that the
averments made against them were unspecific and
general and no particular role was assigned to them.
805 H
806 SUPREME COURT REPORTS [2010] 2 S.C.R.
A Dismissing the appeals, the Court
HELD: 1.1. Section 141 of the Negotiable Instruments
Act requires that the persons who are sought to be made
vicariously liable for a criminal offence under Section 141
8 should be, at the time the offence was committed, were
in-charge of, and were responsible to the company for
the conduct of the business of the company. Every
person connected with the company would not fall within
the ambit of the provision. Only those persons who were
in-charge of and responsible for the conduct of the
C business of the company at the time of commission of
an offence would be liable for criminal action. If a Director
of a Company who was not in-charge of and was not
responsible for the conduct of the business ~f the
company at the relevant time, he would not be liable for
D a criminal offence under the provisions. The liability arises
from being in-charge of and responsible for the conduct
of the business of the company at the relevant time when
the offence was committed and not on the basis of merely
holding a designation or office in a company. [Para 9]
E [814-A-D]
1.2. Section 141 is a penal provision creating
vicarious liability, and must be strictly construed. It is
therefore, not sufficient to make a bald cursory statement
F in a complaint that the Director (arrayed as an accused)
is in charge of and responsible to the company for the
conduct of the business of the company without anything
more as to the role of the Director. But the 'complaint
should spell out as to how and in what manner the
accused was in-charge of or was responsible to the
G accused company for the conduct of its business. This
is in consonance with strict interpretation of penal
statutes, especially, where such statutes create vicarious
liability. A company may have a number of Directors and
to make any or all the Directors as accused in a complaint
H
NATIONAL SMALL INDUSTRIES CORP. LTD. v. 807
HARMEET SINGH PAINTAL
merely on the basis of a statement that they are in-charge A
of and responsible for the conduct of the business of the
company without anything more is not a sufficient or
adequate fulfilment of the requirements under Section
141. In order to fasten the vicarious liability in accordance
with Section 141, the averment as to the role of the B
concerned Directors should be specific. The description
should be clear and there should be some unambiguous
allegations as to how the concerned Directors were
alleged to be in-charge of and was responsible for the
conduct and affairs of the company. [Paras 10 and 14] c
[814-E-H; 815-A; 818-F-G]
SMS Pharmaceuticals v. Neeta Bhalla and Anr. (2005)
8 SCC 89; Sabitha Ramamurthy v. R.B.S.
Channabasavaradhya (2006) 10 SCC 581; Saroj Kumar
Poddar v. State (NCT of Delhi) (2007) 3 SCC 693; N.K. Wahi D
v. Shekhar Singh & Ors. (2007) 9 SCC 481; Ramraj Singh
v. State of M.P. & Anr. (2009) 6 SCC 729; SMS
Pharmaceuticals v. Neeta Bhalla (2007) 4 SCC 70; Everest
Advertising Pvt. Ltd. v. State Govt. of NCT of Delhi & Ors.
(2007) 5 SCC 54; N. Rangachari v. Bharat Sanchar Nigam E
Ltd. (2007) 5 SCC 108; Paresh P. Rajda v. State of
Maharashtra & Anr. (2008) 7 SCC 442; K.K. Ahuja v. V.K.
Vora & Anr. (2009) 10 SCC 48, referred to.
2.1. Section 291 of the Companies Act provides that F
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. A company,
though a legal entity, can act only through its Board of
Directors. The settled position is that a Managing Director G
is prima facie in-charge of and responsible for the
company's business and affairs and can be prosecuted
for offences by the company. But insofar as other
Directors are concerned, they can be prosecuted only if
they were in-charge of and responsible for the conduct H
808 SUPREME COURT REPORTS [2010] 2 S.C.R.
A of the business of the company. [Para 24] [826-C-E]
2.2. Section 141 does not make all the Directors liable
for the offence. For fastening the criminal liability, there
is no presumption that every Director knows about the
transaction. The criminal liability can be fastened only on
8 those who, at the time of the commission of the offence,
were in charge of and were responsible for the conduct
of the business of the company. Vicarious liability can be
inferred against a company registered or incorporated
under the Companies Act, 1956 only if the requisite
C statements, which are required to be averred in the
complaint/petition, are made so as to rnake accused
therein vicariously liable for offence committed by
company along with averments in the petition containing
that accused were in-charge of and responsible for the
D business of the company and by virtue of their position
they are liable to be proceeded with. Vicarious liability on
the part of a person must be pleaded and proved and not
inferred. If accused is Managing Director or Joint
Managing Director then it is not necessary to make
E specific averment in the complaint and by virtue of their
position they are liable to be proceeded with. If accused
is a Director or an Officer of a company who signed the
cheques on behalf of the company then also it is not
necessary to make specific averment in complaint. The
F 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. [Para 25] [828-A-H]
G 2.3. In the appeals of National Small Industries
Corporation, respondent No.1 was no more a Director of
the company when the cheques alleged in the complaint
were signed and the sam~ is evidenced from the Sixth
Annual Report for the year 1996-97 of the accused
H company. The said report is dated 30.08.1997 and the
NATIONAL SMALL INDUSTRIES CORP. LTD. v. 809
HARMEET SINGH PAINTAL
same was submitted with the Registrar of Companies on A
05.12.1997 and assigned as document No. 42 dated
09.03.1998 by the Department. Those documents were
placed before this Court by respondent No.1 as an
additional document. In view of these particulars and in
addition to the interpretation relating to Section 141, no B
liability could be fastened on respondent No.1. Further,
it was pointed out that though he was an authorized
signatory in the earlier transactions, after settlement and
in respect of the present cause of action, admittedly fresh
cheques were not signed by the first respondent. In the c
same way, respondent no.1 in the appeal of the DCM
Financial Services, also filed additional documents to
show that on the relevant date, namely the date of
issuance of cheque he had no connection with the affairs
of the company. In the absence of specific averment as D
to the role of the respondents and particularly in view of
the acceptable materials that at the relevant time, they
were in no way connected with the affairs of the
company, the conclusion arrived at by the High Court is
upheld. [Paras 26 and 27] [829-A-F]
E
Case Law Reference:
(2005) 8 sec 89 referred to Para 14
(2006) 1o sec 581 referred to Para 15
F
(2001) 3 sec 693 referred to Para 16
(2001) 9 sec 481 referred to Para 17
(2009) 6 sec 129 referred to Para 18
(2001) 4 sec 10 referred to Para 19 G
c2001) 5 sec 54 referred to Para 20
(2001) 5 sec 108 referied to Para 21
(2008) 1 sec 442 referred to Para 22 H
810 SUPREME COURT REPORTS [201 O] 2 S.C.R.
A (2009) 10 sec 48 referred to Para 23
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal
No. 320-336 of 2010.
From the Judgment & Order dated 24.10.2007 of the High
B Court of Delhi at New Delhi in Crl. M.C. No. 1853, 1854, 1857,
1862, 1863, 1864, 1865,1866, 1867, 1868, 1869, 1905, 1906,
2568, 2597, 2598 & 2603 of 2005.
WITH
C Crl. Appeal No. 337/2010.
Sanat Kumar, Sanjay Sharma and Sanjay Sharawat for the
Appellants.
o P.P. Malhotra, ASG, Vikas Bansal, Sadhna Sandhu, Anil
Katiyar, Vikash Mehta, Narhari and Rohit Bhat for the
Respondents.
The Judgment of the Court was delivered by
E P. SATHASIVAM, J. 1. Leave granted in all the above .
special leave petitions.
2. The appeals arising out of S.L.P. (Criminal) Nos. 445-
461 of 2008 have been filed by the appellant-National Small
F Industries Corporation Limited against the common judgment
and order dated 24.10.2007 passed by the High Court of Delhi
at New Delhi in a batch of cases whereby the High Court
quashed the summoning orders passed by the trial Court
against respondent No.1 - Harmeet Singh Paintal, under
G Section 138 read with Section 141 of the Negotiable
Instruments Act, 1881 (for short "the Act")
3. The connected criminal appeal arising out of S.L.P. Crl.
No. 1079 of 2008 is filed against the judgment and order dated
24.05.2007 passed by the High Court of Delhi in Criminal
H Revision Petition No. 163 of 2005, whereby the High Court
NATIONAL SMALL INDUSTRIES CORP. LTD. v. 811
HARMEET SINGH PAINTAL [P. SATHASIVAM, J.]
quashed the summoning order passed by the trial Court A
against respondent No.1 - Dev Sarin under Section 138 read
with Section 141 of the Act.
4. Since all these appeals are identical and same legal
issues arise, they are being disposed of by this common
8
judgment.
5. The appellant - National Small Industries Corporation
Ltd. had filed 12 criminal complaints under Section 138 read
with Sections 141 and 142 of the Act against M/s Jay Rapid
Roller Limited, a Company incorporated under the Companies C
Act, its Managing Director - Shri Sukhbir Singh Paintal, and its
Director - Shri Harmeet Singh Paintal. It is the claim of the
appellant that so as to make the Managing Director and
Director of the Company liable to be prosecuted under the
provisions of the Act, they had specifically averred in the D
complaint that all the accused persons approached it for
financing of bill integrated market support programme. It was
also stated that the accused persons had issued cheques
which were dishonoured on presentation against which the
appellant had filed criminal complaints under the provisions of E
the Act against all the respondents herein. It is their further case
that all the accused persons accepted their liability and
delivered various cheques, which are the subject matter of the
present appeals.
6. In the connected appeal, the appellant - DCM Financial F
Services Ltd., entered into a hire purchase agreement on
25.02.1996 with M/s International Agro Allied Products Ltd. At
the time of entering into contract, the Company handed over
post-dated cheques to the appellant towards payment of
monthly hire/rental charges. Respondent No.1 - Dev Sarin was G
one of the Directors of the said Company. The cheque issued
by International Agro and Allied Products Ltd. in favour of the
appellant was duly presented for payment on 28.10.1998 and
the same was returned unpaid for the reason that the Company
had issued instructions to the bankers stopping payment of the H
812 SUPREME COURT REPORTS [2010] 2 S.C.R.
A cheque. The appellant issued a legal notice on 05.12.1998 to
the Company, Respondent No.1 and other Directors under
Section 138 of the Act informing them about the dis-honouring
of the cheque in question. Despite the service of the notice, the
Company did not make the payment to the appellant. The
B appellant, on 11.01.1999, filed a complaint before the
Metropolitan Magistrate, New Delhi against respondent No.1
and others under Section 138 read with Section 141 of the Act.
By order dated 04.02.1999, the Metropolitan Magistrate, New
Delhi, after recording evidence summoned the accused
c persons including respondent No.1 herein. Respondent No.1
filed an application before the Additional Sessions Judge, Delhi
for dropping of proceedings against him. By order dated
08.09.2004, the Metropolitan Magistrate dismissed the said
application. Aggrieved by the said order, the respondent filed
D a petition under Section 482 of the Criminal Procedure Code
before the High Court for quashing of the complaint. The High
Court, after finding that the averments against respondent No.1
are unspecific and general and no particular role is assigned
to the appellant, quashed the summoning order insofar as it
concerned to him.
E
7. In this factual matrix, the issue which arises for
determination before this Court is whether the order of the High
Court quashing the summoning orders insofar as the
respondents are concerned is sustainable and what should be
F the averments in the complaint under Section 138 read with
Section 141 of the Act against the Director of a Company
before he can be subjected to criminal proceedings.
8. Heard learned counsel for the appellants as well as the
G learned ASG and senior counsel for the respondents.
9. Section 138 of the Act refers about penalty in case of
dishonour of cheque for insufficiency of funds in the account.
We are more concerned about Section 141 dealing with
offences by Companies which reads as under:-
H
NATIONAL SMALL INDUSTRIES CORP. LTD. v. 813
HARMEET SINGH PAINTAL [P. SATHASIVAM, J.]
"141. Offences by companies.-(1) If the person A
committing an offence under Section 138 is a company,
every person who, at the time the offence was committed,
was in charge of, and was responsible to the company for
the conduct of the business of the company, as well as the
company, shall be deemed to be guilty of the offence and B
shall be liable to be proceeded against and punished
accordingly:
Provided that nothing contained in this sub-section shall
render any person liable to punishment if he proves that C
the offence was committed without his knowledge, or that
he had exercised all due diligence to prevent the
commission of such offence.
Provided further that where a person is nominated
as a Director of a company by virtue of his holding any D
office or employment in the Central Government or State
Government or a financial corporation owned or controlled
by the Central Government or the State Government, as
the case may be, he shall not be liable for prosecution
under this Chapter. E
(2) Notwithstanding anything contained in sub-section (1 ),
where any offence under this Act has been committed by
a company and it is proved that the offence has been
committed with the consent or connivance of, or is
attributable to, any neglect on the part of, any director,
F
manager, secretary or other officer of the company, such
director, manager, secretary or other officer shall also be
deemed to be guilty of that offence and shall be liable to
be proceeded against and punished accordingly.
G
Explanation.- For the purposes of this section,-
(a) 'company' means any body corporate and includes a
firm or other association of individuals; and
H
814 SUPREME COURT REPORTS [2010] 2 S.C.R.
A (b) 'director', in relation to a firm, means a partner in the
firm."
It is very clear from the above provision that what is required is
that the persons who are sought to be made vicariously liable
for a criminal offence under Section 141 should be, at the time
8
the offence was committed, was in-charge of, and was
responsible to the company for the conduct of the business of
the company. Every person connected with the company shall
not fall within the ambit of the provision. Only those persons who
C were in-charge of and responsible for the conduct of the
business of the company at the time of commission of an
offence will be liable for criminal action. It follows from the fact
that if a Director of a Company who was not in-charge of and
was not respo_nsible for the conduct of the business of the
company at the relevant time, will not be liable for a criminal
D offence under the provisions. The liability arises from being in-
charge of and responsible for the conduct of the business of
the company at the relevant time when the offence was
committed and not on the basis of merely holding a designation
or office in a company.
E
10. Section 141 is a penal provision creating vicarious
liability, and which, as per settled law, must be strictly construed.
It is therefore, not sufficient to make a bald cursory statement
in a complaint that the Director (arrayed as an accused) is in
F charge of and responsible to the company for the conduct of
the business of the company without anything more as to the
role of the Director. But the complaint should spell out as to how
and in what manner Respondent No.1 was in-charge of or was
responsible to the accused company for the conduct of its
G business. This is in consonance with strict interpretation of
penal statutes, especially, where such statutes create vicarious
liability. A company may have a number of Directors and to
make any or all the Directors as accu~ed in a complaint merely
on the basis of a statement that they are in-charge of and
responsible for the conduct of the business of the company
H
NATIONAL SMALL INDUSTRIES CORP. LTD. v. 815
HARMEET SINGH PAINTAL [P. SATHASIVAM, J.]
without anything more is not a sufficient or adequate fulfillment A
of the requirements under Section 141.
11. In a catena of decisions, this Court has held that for
making Directors liable for the offences committed by the
company under Section 141 of the Act, there must be specific
8
averments against the Directors, showing as to how and in
what manner the Directors were responsible for the conduct of
the business of the company.
12. In the light of the above provision and the language
used therein, let us, at the foremost, examine the complainta C
filed by National Small Industries Corporation Limited and the
DCM Financial Services Ltd. In the case of National Small
Industries Corpn. Ltd., the High Court has reproduced the entire
complaint in the impugned order and among other clauses,
clause 8 is relevant for our consideration which reads as under: D
"8. That the accused No. 2 is the Managing Director and
accused No. 3 is the Director of the accused company.
The accused No. 2 and 3 are the in-charge and
responsible for the conduct of the business of the company E
accused No. 1 and hence are liable for the offences."
13. In the case of DCM Financial Services Ltd., in
complaint-Annexure-P2 the relevant clause is 13 which reads
as under:
F
"13. That the accused No. 1 is a Company/Firm and the
accused Nos. 2 to 9 were in charge and were responsible
to the accused No. 1 for the conduct of the business to the
accused No. 1 at the time when offence was committed.
Hence, the accused Nos. 2 to 9 in addition to the accused G
No. 1, are liable to be prosecuted and punished in
accordance with law by this Hon'ble Court as provided by
section 141 of the N.I. Act, 1881. Further the offence has
been committed by the accused No. 1 with the consent
and connivance of the accused Nos. 2 to 9."
H
816 SUPREME COURT REPORTS [2010] 2 S.C.R.
A 14. Now, let us consider whether the abovementioned
complaint in both cases has satisfied the necessary
ingredients to attract Section 141 insofar as the respondents,
namely, Directors of the company are concerned. Section 141
of the Act has been interpreted by this Court in various
B decisions. As to the scope of Section 141 of the Act, a three-
Judge Bench of this Court considered the following questions
which had been referred to it by a two-Judge Bench of this Court
in SMS Pharmaceuticals vs. Neeta Bhalla and Anr. (2005) 8
sec 89:
c "(a) Whether for purposes of Section 141 of the Negotiable
Instruments Act, 1881, it is sufficient if the substance of the
allegation read as a whole fulfil the 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
D responsible for, the conduct of the business of the
company.
(b) Whether a director of a company would be deemed to
be in charge of, and responsible to, the company for
E conduct of the business of the company and, therefore,
deemed to be guilty of the offence unless he proves to the
contrary.
(c) Even if it is held that specific averm~nts are necessary,
whether in the absence of such averments the signatory
F 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 for conduct
of its business could be proceeded against."
G While considering the above questions, this Court held as
under:
"18. To sum up, there is almost unanimous judicial opinion
that necessary averments ought to be contained in a
complaint before a person can be subjected to criminal
H
NATIONAL SMALL INDUSTRIES CORP. LTD. v. 817
HARMEET SINGH PAINTAL [P. SATHASIVAM, J.]
process. A liability under Section 141 of the Act is sought A
to be fastened vicariously on a person connected with a
company, the principal accused being the company itself.
It is a departure from the rule in criminal law against
vicarious liability. A clear case should be spelled out in the
complaint against the person sought to be made liable. B
Section 141 of the Act contains the requirements for
making a person liable under the said provision. That the
respondent falls within the parameters of Section 141 has
to be spelled out. A complaint has to be examined by the
Magistrate in the first instance on the basis of averments c
contained therein. If the Magistrate is satisfied that there
are averments which bring the case within Section 141,
he would issue the process. We have seen that merely
being described as a director in a company is not
sufficient to satisfy the requirement of Section 141. Even
0
a non-director can be liable under Section 141 of the Act.
The averments in the complaint would also serve the
purpose that the person sought to be made liable would
know what is the case which is alleged against him. This
will enable him to meet the case at the trial.
E
19. In view of the above discussion, our answers to the
questions posed in the reference are as under:
(a) It is necessary to specifically aver in a complaint
under Section 141 that at the time the offence was F
committed, the person accused was in charge of, and
responsible for the conduct of business of the company.
This averment is an essential requirement of Section 141
and has to be made in a complaint. Without this averment
being made in a complaint, the requirements of Section G
141 cannot be said to be satisfied.
(b) The answer to the question posed in sub-para (b)
has to be in the negative. Merely being a director of a
company is not sufficient to make the person liable under
Section 141 of the Act. A director in a company cannot H
818 SUPREME COURT REPORTS [2010] 2 S.C.R.
A be deemed to be in charge of and responsible to the
company for the conduct of its business. The requirement
of Section 141 is that the person sought to be made liable
should be in charge of and responsible for the conduct of
the business of the company at the relevant time. This has
B to be averred as a fact as there ·is no deemed liability of
a director in such cases.
(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
c of the company and responsible to the company for the
conduct of its business. When that is so, holders of such
positions in a company become liable under Section-141
of the Act. By virtue of the office they hold as managing
director or joint managing director, these persons are in
D charge of and responsible for the conduct of business of
the company. Therefore, they get covered under Section
141. So far as the signatory of a cheque which is
dishonoured is concerned, he is clearly responsible for the
incriminating act and will be covered under sub-section (2)
E of Section 141."
Therefore, this Court has distinguished the case of persons who
are in-charge of and responsible for the conduct of the business
of the company at the time of the offence and the persons who
F are merely holding the post in a company and are not in-charge
of and responsible for the conduct of the business of the
company. Further, in order to fasten the vicarious liability in
accordance with Section 141, the averment as to the role of
the concerned Directors should be specific. The description
G should be clear and there should be some unambiguous
allegations as to how the concerned Directors were alleged to
be in- charge of and was responsible for the conduct and affairs
of the company.
15. In Sabitha Ramamurthy vs. R.B."S.
H
NATIONAL SMALL INDUSTRIES CORP. LTD. v. 819
HARMEET SINGH PAINTAL [P. SATHASIVAM, J.]
Channabasavaradhya, (2006) 10 SCC 581, this Court while A
dealing with the same issue observed as under:
" ...... It may be true that it is not necessary for the
complainant to specifically reproduce the wordings of the
section but what is required is a clear statement of fact so
B
as to enable the court to arrive at a prima facie opinion
that the accused are vicariously liable. Section 141 raises
a legal fiction. By reason of the said provision, a person
although is not personally liable for commission of such an
offence would be vicariously liable therefor. Such vicarious C
liability can be inferred so far as a company registered or
incorporated under the Companies Act, 1956 is
concerned 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 the
offence committed by the company. Before a person can D
be made vicariously liable, strict compliance with the
statutory requirements would be insisted. Not only the
averments made in para 7 of the complaint petitions do
not meet the said statutory requirements, the sworn
statement of the witness made by the son of the E
respondent herein, does not contain any statement that the
appellants were in charge of the business of the Company.
In a case where the court is required to issue summons
which would put the accused to some sort of harassment,
the court should insist strict compliance with the statutory F
requirements. In terms of Section 200 of the Code of
Criminal Procedure, the complainant is bound to make
statements on oath as to how the offence has been
committed and how the accused persons are responsible
therefor. In the event, ultimately, the prosecution is found G
to be frivolous or otherwise mala fide, the court may direct
registration of case against the complainant for mala fide
prosecution of the accused. The accused would also be
entitled to file a suit for damages. The relevant provisions
of the Code of Criminal Procedure are required to b.e H
820 SUPREME COURT REPORTS [2010) 2 S.C.R.
A construed from the aforementioned point of view."
16. In Saroj Kumar Poddar vs. State (NCT of Delhi) (2007)
3 SCC 693, while following SMS Pharmaceuticals case
(supra) and Sabhita Ramamurthy case (supra), this Court held
that with a view to make the Director of a company vicariously
8
liable for the acts of the company, it was obligatory on the part
of the complainant to make specific allegations as are required
under the law and under Section 141 of the Act and further held
that in the absence of such specific averments in the complaint
showing as to how and in what manner the Director is liable,
C the complaint should not be entertained. The relevant portion
of the judgment is reproduced hereinbelow:-
"12. A person would be vicariously liable for commission
of an offence on the part of a company only in the event
D the conditions precedent laid down therefor in Section 141
of the Act stand satisfied. For the aforementioned
purpose, a strict construction would be necessary.
13. The purported averments which have been made in the
complaint petitions so as to make the appellant vicariously
E
liable for the offence committed by the Company read as
under:
"That Accused 1 is a public limited company
incorporated and registered under the Companies Act,
F 1956, and Accused 2 to 8 are/were its Directors at the
relevant time and the said Company is managed by the
Board of Directors and they are responsible for and in
charge of the conduct and business of the Company,
Accused 1. However, cheques referred to in the complaint
G have been signed by Accused 3 and 8 i.e. Shri K.K.
Pilania and Shri N.K. Munjal for and on behalf of Accused
1 Company.
14. Apart from the Company and the appellant, as noticed
hereinbefore, the Managing Director and all other Directors
H
NATIONAL SMALL INDUSTRIES CORP. LTD. v. 821
HARMEET SINGH PAINTAL [P. SATHASIVAM, J.]
were also made accused. The appellant did not issue any A
cheque. He, as noticed hereinbefore, had resigned from
the directorship of the Company. It may be true that as to
exactly on what date the said resignation was accepted
by the Company is not known, but, even otherwise, there
is no averment in the complaint petitions as to how and in B
what manner the appellant was responsible for the conduct
of the business of the Company or otherwise 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, c
in our opinion do not satisfy the requirements of Section
141 of the Act."
17. In a subsequent decision in N.K. Wahi vs. Shekhar
Singh & Ors., (2007) 9 SCC 481 while following the
precedents of SMS Pharmaceuticals's case (supra), Sabhita D
Ramamurthy's case (supra) and Saroj Kumar Poddar's case
(supra), this Court reiterated that for launching a prosecution
against the alleged Directors, there must be a specific
allegation in the complaint as to the part played by them in the
transaction. The relevant portion of the judgment is as under: E
"7. This provision clearly shows that so far as the
companies are concerned if any offence is committed by
it then every person who is a Director or employee of the
company is not liable. Only such person would be held F
liable if at the time when offence is committed he was in
charge and was responsible to the company for the
conduct of the business of the company as well as the
company. Merely being a Director of the company in the
absence of above factors will not make him liable.
G
8. To launch a prosecution, therefore, against the alleged
Directors there must be a specific allegation 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 responsible for the H
822 SUPREME COURT REPORTS [201 O] 2 S.C.R.
A 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
B evidence the net result would be that complaint would not
be entertainable."
18. The said issue again came up for consideration before
a three-Judge Bench of this Court recently in Ramraj Singh vs.
State of M.P. & Anr. (2009) 6 sec 729. In this case, the earlier
C decisions were also considered in detail. Following the
decisions of SMS Pharmaceuticals' case (supra), Sabhita
Ramamurthy's case (supra), Saro) Kumar Poddar's case
(supra) and N.K. Wahi's case (supra) this Court held that it is
necessary to specifically aver in a complaint under Section 141
D that at the time when the offence was committed, the person
accused was in-charge of, and responsible for the conduct of
the business of the company. Furthermore, it held that vicarious
liability can be attributed only if the requisite statements, which
are required to be averred in the complaint petition, are made
E so as to ~ake the accused/Director therein vicariously liable
for the offence committed by the company. It was further held
that before a person can be made vicariously liable, strict
compliance of the statutory requirements would be insisted.
Thus, the issue in the present case is no more res integra and
F has been squarely covered by the decisions of this Court
referred above. It is submitted that the aforesaid decisions of
this Court have become binding precedents.
19. In the case of second SMS Pharmaceuticals vs. Neeta
G Bhalla, (2007) 4 SCC 70, this Court has categorically held that
there may be a large number of Directors but some of them
may not assign themselves in the management of the day-to-
day affairs of the company and thus are not responsible for the
conduct of the business of the company.
H
NATIONAL SMALL INDUSTRIES CORP. LTD. v. 823
HARMEET SINGH PAINTAL [P. SATHASIVAM, J.]
Para 20 of the said judgment is relevant which is reproduced A
hereunder:-
"20. The liability of a Director must be determined on the
date on 'which the offence is committed. Only because
Respondent 1 herein was a party to a purported resolution
8
dated 15-2-1995 by itself does not lead to an inference
that she was actively associated with the management of
the affairs of the Company. This Court in this case has
categorically held that there may be a large number of
Directors but some of them may not associate themselves C
in the management of the day-to-day affairs of the
Company and, thus, are not responsible for the conduct
of the business of the Company. The averments must state
that the person who is vicariously liable for commission of
the offence of the Company both was in charge of and was
responsible for the conduct of the business of the D
Company. Requirements laid down therein must be read
conjointly and ·not disjunctively. When a legal fiction is
raised, the ingredients therefor must be satisfied."
20. Relying on the judgment of this Court in Everest E
Advertising Pvt. Ltd. vs. State Govt. of NCT of Delhi & Ors.,
(2007) 5 sec 54, learned counsel for the appellants argued
that this Court has not allowed the recalling of summons in a
criminal complaint filed.under sections 138 and 141. However,
a perusal of the judgment would reveal that this case was of F
recalling of summons by the Magistrate for which the Magistrate
had no jurisdiction. Further, para 22 of the judgment would
reveal that in the complaint "allegations have not only been
made in terms of the wordings of section but also at more than
one place, it has categorically been averred that the payments G
were made after the meetings held by and between the
representative of the Company and accused nos. 1 to 5 which
would include Respondent Nos. 2 and 3." In para 23, this Court
concluded that "it is therefore, not a case w~ere having regard
to the position held by the said respondents in the Company,
H
824 SUPREME COURT REPORTS [2010] 2 S.C.R.
A they could plead ignorance of the entire transaction".
Furthermore, this Court has relied upon S.M.S.
Pharamaceutical's case (three-Judge Bench) (supra), Saroj
Kumar Poddar's case (supra) and N.K. Wahi's case (supra).
21. Relying on the judgment of this Court in N. Rangachari
8
vs. Bharat Sanchar Nigam Ltd., (2007) 5 SCC 108, learned
counsel for the appellants further contended that a payee of
cheque that is dishonoured can be expected to allege is that
the persons named in the complaint are in-charge of its affairs
and the Directors are prima facie in that position. However, it
C is pertinent to note that in this case it was specifically mentioned
in the complaint that (i) accused no. 2 was a director and in
charge of and responsible to the accused Company for the
conduct of its business; and (ii) the response of accused no. 2
to the notice issued by BSNL that the said accused is no longer
D the Chairman or Director of the accused Company was false
and by not keeping sufficient funds in their account and failing
to pay the cheque amount on service of the notice, all the
accused committed an offence. Therefore, this decision is
clearly distinguishable on facts as in the said case necessary
E averments were made out in the complaint itself. Furthermore,
this decision does not and could not have overruled the
decisions in S.M.S. Pharmaceutical's case (three-Judge
Bench)(supra), Ramraj Singh's case (three-Judge
Bench)(supra), Saroj Kumar Poddar's case (supra) and N.K.
F Wahi's case (supra) wherein it is clearly held that specific
averments have to be made against the accused Director.
22. Learned counsel for the appellants after elaborately
arguing the matter, by inviting our attention to Paresh P. Rajda
vs. State of Maharashtra & Anr., (2008) 7 SCC 442 contended
G that a departure/digression has been made by the Court in the
case of N. Rangachari vs. BSNL (supra). However, in this
case also the Court has observed in para 4 that the High Court
had noted that an overall reading of the complaint showed that
specific allegations had been leveled against the accused as
H
NATIONAL SMALL INDUSTRIES CORP. LTD. v. 825
HARMEET SINGH PAINTAL [P. SATHASIVAM, J.]
being a responsible officer of the accused Company and A
therefore, equally liable. In fact, the Court recorded the
allegations in the complaint that the Complainant knew all the
accused and that accused no. 1 was the Chairman of the
accused Company and was responsible for day to day affairs
of the Company. This Court though has only noted the decision B
in N. Rangachari's case (supra) and observed that an
observation therein showed a slight departure vis-a-vis the other
judgments (i.e. S.M.S. Pharmaceuticals first case and S.M.S.
Pharmaceutical's second case), but then Court went on to
record that in N.K. Wahi's case (supra) this Court had c
reiterated the view in S.M.S. Pharmaceutical's case (supra).
The Court then concluded in para 11 that it was clear from the
aforequoted judgments that the entire matter would boiled down
to an examination of the nature of averments made in the
complaint. On facts, the Court found necessary averments had 0
been made in the complaint.
23. Though, the learned counsel for the appellants relying
on a recent decision in K.K. Ahuja vs. V.K. Vora & Anr., (2009)
1O sec 48, it is clearly recorded that in the complaint it was
alleged that the accused were in-charge of and was E
responsible for the conduct of the day-to-day business of the
accused Company and further all the accused were directly and
actively involved in the financial dealings of the Company and
the same was also reiterated in the pre-summoning evidence.
Furthermore, this decision also notes that it is necessary to F
specifically aver in a complaint that the person accused was
in-charge of and responsible for the conduct of the business
of the Company. After noting Saroj Kumar Poddar's case
(supra) and N.K. Wahi's case (supra), this Court further noted
in para 9 that " ...... the prevailing trend appear to require the G ·
Complainant to state how a Director who is sought to be made
an accused, was in-charge of the business of the Company,
as every Director need not be and is not in-charge of the
business of the Company ..... ". In Para 11, this Court has further
recorded that "..... When conditions are prescribed for extending H
826 SUPREME COURT REPORTS [2010] 2 S.C.R.
A such constructive criminal liability to others, courts will insist
upon strict literal compliance. There is no question of inferential
or implied compliance. Therefore, a specific averment
complying with the requirements of Section 141 is
imperative ... " Though the Court then said that an averment in
B the complaint that the accused is a Director and in-charge of
and responsible for the conduct of the business may be
sufficient but this would not take away from the requirement that
an overall reading of the complaint has to be made to see
whether the requirements of Section 141 have been made out
c against the accused Director or not. Furthermore, this decision
cannot be said to have overruled the various decisions of this
Court.
24. Section 291 of the Companies Act provides that
subject to the provisions of that Act, the Board of Directors of
D 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. A company, though a legal entity, can act only
through its Board of Directors. The settled position is that a
Managing Director is prima facie in-charge of and responsible.
E for the company's business and affairs and can be prosecuted
for offences by the company. But insofar as other Directors are
concerned, they can be prosecuted only if they were in-charge
of and responsible for the conduct of the business of the
company. A combined reading of Sections 5 and 291 of
F Companies Act, 1956 with the definitions in clauses 24, 26, 30,
31 and 45 of Section 2· of that Act would show that the following
persons are considered to be the persons who are responsible
to the company for the conduct of the business of the company:
(a) the Managing Director/s;
G
(b) the whole-time Director/s;
(c) the Manager;
(d) the Secretary;
H
NATIONAL SMALL INDUSTRIES CORP. LTD. I(. 827
HARMEET SINGH PAINTAL [P. SATHASIVAM, J.]
(e) any person in accordance wrt_h whose directions or A
instructions the Board of Directors of the company is
accustomed to act;
(f) any person charged by the Board of Directors with the
responsibility of complying with that provision;
B
Provided that the person so charged has given his
consent in this behalf to the Board;
(g) where any company does not have any of the officers
specified in clauses (a) to (c), any director or directors who c
may be specified by the Board in this behalf or where no
director is so specified, all the directors:
Provided that where the Board exercises any power under
clause (f) or clause (g), it shall, within thirty days of the exercise
0
of such powers, file with the Registrar a return in the prescribed
form.
But if the accused is not one of the persons who falls under
the category of "persons who are responsible to the company
for the conduct of the business of the company" then merely by E
stating that "he was in-charge of the business of the company"
or by stating that "he was in- charge of the day-to-day
management of the company" or by stating that "he was in-
charge of, and was responsible to the company for the conduct
of the business of the company'', he cannot be made vicariously F
liable under Section 141 ( 1) of the Act. To put it clear that for
making a person liable under Section 141 (2), the mechanical
repetition of the requirements under Section 141(1) will be of
no assistance, but there should be necessary averments in the
complaint as to how and in what manner the accused was guilty G
of consent and connivance or negligence and therefore,
responsible under sub-section (2) of Section 141 of the Act.
25. From the above discussion, the following principles
emerge:
H
828 SUPREME COURT REPORTS [2010] 2 S.C.R.
A (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 liable.
For fastening the criminal liability, there is no presumption
that every Director knows about the transaction.
B
(ii) Section 141 does not make all the Directors liable for
the offence. The criminal liability can be fastened only on
those who, at the time of the commission of the offence,
were in charge of and were responsible for the conduct of
the business of the company.
c
(iii) Vicarious liability can be inferred against a company
registered or incorporated under the Companies Act, 1956
only if the requisite statements, which are required to be
averred in the complaint/petition, are made so as to make
D accused therein vicariously liable for offence committed by
company along with averments in the petition containing
that accused were in-charge of and responsible for the
business of the company and by virtue of their position they
are liable to be proceeded with.
E
(iv) Vicarious liability on the part of a person must be
pleaded and proved and not inferred.
(v) If accused is Managing Director or Joint Managing
Director then it is not necessary to make specific averment
F in the complaint a.nd by virtue of their position they are liable
to be proceeded with. -i:~,
(vi) If accused is a Director or an Officer of a company who
signed the cheques on behalf of the company then also it
is not necessary to make specific averment in complaint.
G
(vii) The person sought to be made liable should be in-
charge of and responsible for the conduct of the business
of the company at the relevant time. This has to be averred
as a fact as there is no deemed liability of a Director in
H such cases.
NATIONAL SMALL INDUSTRIES CORP. LTD. v. 829
HARMEET SINGH PAINTAL [P. SATHASIVAM, J.]
26. Apart from the legal position with regard to compliance A
of Section 141 of the Act, in the appeals of National Small
Industries Corporation, respondent No.1-Harmeet Singh Paintal
was no more a Director of the company when the cheques
alleged in the complaint were signed and the same is
evidenced from the Sixth Annual Report for the year f996-97 B
of the accused company. The said report is of dated
30.08.1997 and the same was submitted with the Registrar of
Companies on 05.12.1997 and assigned as document No. 42
dated 09.03.1998 by the Department. Those documents have
been placed before this Court by respondent No.1 as an c
additional document. In view of these particulars and in addition
to the interpretation relating to Section 141 which we arrived
at, no liability could be fastened on respondent No.1. Further,
it was pointed out that though he was an authorized signatory
in the earlier transactions, after settlement and in respect of the
0
present cause of action, admittedly fresh cheques were not
signed by the first respondent. In the same way, in the appeal
of the DCM Financial Services, the respondent therein, namely,
Dev Sarin also filed additional documents to show that on the
relevant date, namely the date of issuance of cheque he had
E
no connection with the affairs of the company.
. 27. In the light of the above discussion and legal principles,
we are in agreement with the conclusion arrived at by the High
Court and in the absence of specific averment as to the role of
the respondents and particularly in view of the acceptable F
materials that at the relevant time they were in no way
connected with the affairs of the company, we reject all the
contentions raised by learned counsel for the appellants.
Consequently, all the appeals fail and are accordingly
dismissed. G
D.G. Appeals dismissed.
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