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Ramasita Finance And Investments Pvt. Ltd., v/s Meenakshi Nagappa Halamanavar

    Cri.Revn.Petn.No.811 of 2003

    Decided On, 11 December 2003

    At, High Court of Karnataka

    By, THE HONOURABLE MR. JUSTICE A.C. KABBIN

    For the Petitioner: Krishna S. Dixit, Advocate. For the Respondent: --



Judgment Text

The revision petitioner is the complainant in CC. No. 462/2001 on the file of the Additional Civil Judge and Chief Judicial Magistrate, Dharwad, in a case filed against a company and its directors alleging an offence punishable under Section 138 of the Negotiable Instruments Act.


The case of the complainant is that in the course of transaction between the complainant and accused No. 1-company, a cheque dated 18-1-2000 for Rs. 60,000/- drawn on Malaprabha Grameena Bank, Dharwad Main Branch had been issued by the accused, which cheque, when presented for encashment, was dishonoured on the ground of "insufficiency of funds" and that despite service of requisite notice, the accused had failed to pay the amount. The accused No. 1 is a company and the accused Nos. 2 to 4 are the directors of the said company. According to the complainant, cheque had been signed by accused No. 2 on behalf of accused No. 1-company.


The learned Chief Judicial Magistrate, Dharwad, took cognizance of the matter and after recording the sworn statement of the complainant, directed registration of the case against all the four accused and issuance of notices to them. That was challenged by accused Nos. 3 and 4 before the Sessions Judge, Dharwad and that revision petition No. 225/2001, after transfer to the Fast Track Court, Dharwad, was considered by the learned Presiding Officer. Fast Track Court. The Court found that as regards accused No. 4 (the present respondent) it was not alleged that she was in charge of and responsible to the company for the business of accused No. 1-company and that therefore the learned Chief Judicial Magistrate was not right in directing issuance of process to accused No. 4. In that view of the matter, he allowed in part the revision petition and set aside the order dated 12-6-2003 passed by the learned Additional Chief Judicial Magistrate, so far as it related to the registration of the case against accused No. 4 (the present respondent). That order has been challenged in the present revision petition.


It is argued by Sri. Krishna S. Dixit, the learned counsel for the revision petitioner that under Sections 291 and 292 of the Companies Act, the Board of Directors of a Company have been invested with the power of certain transactions and that therefore the accused No. 4 also will have to be regarded as the person responsible for the conduct of the business of the Company. He argues that on that reasoning, the learned Sessions Judge was not right in concluding that accused No. 4 (the present respondent) was not liable for prosecution. On a careful reading of Sections 291 and 292 of the Companies Act, it is seen that they are enabling provisions and as regards liability of a director for prosecution for the dishonoured cheque issued on behalf of the concerned company, it has to be shown that such director was, at the time, the offence was committed, responsible to the company for the conduct of the business of the company.


The decision in Smt. Deveeramma v. Shivalingappa, ILR 2002 Kant 1026 : (2002 AIR - Kant HCR 2932 : 2002 Cri LJ 374) is cited to show that the High Court declined to quash the proceedings in a similar situation against the director since it was felt that the matter required to be examined on evidence. As observed by this Court in M/s. Hotline Shares and Securities Ltd. v. Dinesh Ganeshmal Shah, ILR 2002 Kant 3174 : (2002 AIR - Kant HCR 1975 : 2002 Cri LJ 3291), the liability of the directors to repay the loan in cases of the prosecution against the company is purely a matter of evidence, but from the relevant provisions i.e., Sections 138 and 141 of the Negotiable Instruments Act, it is clear that it is only such of the directors who were in charge of and were responsible to the company for conduct of the business of the company, who would be liable to be prosecuted. The relevant provisions, i.e., sub-sections (1) and (2) of Section 141 of the Negotiable Instruments Act read as under :


"141. Offences by companies. - (1) If the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall 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 the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence.


(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, 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."


Provision similar to Section 141 of the Negotiable Instruments Act are also found under the Prevention of Food Adulteration Act, 1954 and the Supreme Court in Municipal Corporation of Delhi v. Ram Kishan Rohtagi, AIR 1983 SC 67 : (1983 Cri LJ 159) observed that so far as the Directors are concerned, there was not even a whisper nor a shred of evidence nor anything to show, apart from the presumption drawn by the complainant, that there was any act committed by the Directors from which a reasonable inference could be drawn that they could also be vicariously liable. In the circumstances of the case, the Supreme Court observed that no case against the Directors had been made out ex facie on the allegations made in the complaint; and consequently the order of the High Court quashing the proceedings against them was upheld. In a similar case under the Drugs and Cosmetics Act, the Supreme Court in State of Haryana v. Brij Lal Mittal, AIR 1998 SC 2327 : (1998 Cri LJ 3287) has considered the prosecution of directors of a manufacturing company and quashed the proceedings on the ground that there was no allegation to indicate, even prima facie, that those directors were in charge of the company and also responsible to the company for the conduct of the business.


It is therefore clear that liability of a director of a company for prosecution for an offence punishable u/S. 138 of the Negotiable Instruments Act, apart from the company and the person, who signed the cheque, is only if he was in charge of and was responsible to

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the company for the conduct of the business of the company at the time the offence was committed and complainant makes an averment to that effect in the complaint. In the absence of such an averment, the Court cannot take cognizance of the offence against such director. In the present case, it is clear that there was no allegation by the complainant that the accused No. 4 was in charge of and was responsible to the company for the conduct of the business of the company and therefore the learned Presiding Officer, Fast Track Court was right in holding that accused No. 4 was not liable to be prosecuted. For the abovesaid reasons, the revision petition is dismissed at the admission stage itself. Petition dismissed.
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