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Sethuraman Thiagarajan Engineers P. Limited and Others v/s Cholamandalam Investments and Finance Company Limited

    Decided On, 05 January 1994

    At, High Court of Judicature at Madras

    By, THE HONOURABLE MR. JUSTICE PRATAP SINGH

    For the Petitioner:--- For the Respondent:---



Judgment Text

PRATAP SINGH J.


The accused in C. C. No. 5427 of 1991 on the file of the VIIth Metropolitan Magistrate, George Town, Madras, have filed this petition under section 482 of the Criminal Procedure Code, 1973, praying to call for the records in the above case and to quash the same. The short facts are : The respondent has filed a complaint against the petitioner for an offence under section 138 of the Negotiable Instruments Act, 1881 (which I shall hereinafter refer to as "the Act"). The cornplainant carries on business in hire purchase, financing and leasing. In the course of the complainant's business, the first accused entered into an agreement of bills discounting for supply of emergency switchboards and outgoing feeders with the complainant-company. Pursuant to the agreement entered into between the complainant and the first accused, of which the second and the third accused are directors, the first accused company handed over two cheques for Rs. 6, 57, 000 and Rs. 13, 77, 000 drawn on State Bank of Mysore, Abiramapuram Branch, Madras-18, in favour of the complainant dated July 1, 1991. The complainant presented those cheques for collection on July 2, 1991. The same were returned with the remarks "insufficiency of funds". Thus, the accused have committed an offence under section 138 of the Act. The complainant sent a letter to the accused calling upon them to settle the matter by sending a demand draft within 15 days of receipt of the letter. They have not complied with the request. The first accused is the company and the second and the third accused are directors in the first accused company and they are jointly and severally liable inasmuch as the second and the third accused were in charge of and responsible for the conduct of the business of the first accused company at the time of committing the offence. Hence, the complaint.Mr. V. Gopinath, learned counsel appearing for the petitioners, would submit that regarding the third accused, except the allegations in para 4 of the complaint that the second and the third accused were in charge of and responsible for the conduct of the first accused company at the time of committing the offence, no other allegations are made regarding any act done by the third accused to show that he was in management or responsible for the conduct of the business of the first accused company and hence the complaint is liable to be quashed as against him. He would next submit that there was a notice preceding the filing of the complaint and the allegations in the notice would show that the cheques mentioned in the complaint were not issued for discharge of a legal liability on the part of any one of the accused and hence the complaint is liable to be quashed as against all the accused.


Per contra Mr. K. S. Rajagopalan, learned counsel appearing for the respondent, would submit that the allegations in the complaint are sufficient to make out the offence as against the third accused also. He would further submit that the allegations made in the complaint regarding the issue of the cheques would show that they were issued to discharge the legal liability and that the allegations made in the notice preceding the complaint are in tune with the allegations made in the complaint and so the complaint is not liable to be quashed against any one of the accused.


I have carefully considered the submissions made by the rival counsel. I shall first take up the first submission made by Mr. V. Gopinath, viz., that the allegations in the complaint are not sufficient to make out a case against the third accused. To consider this submission, the relevant allegations in the complaint need to be stated. In para 3 of the complaint it is alleged :


"in the course of the complainant's business the first accused company entered into an agreement of bills discounting for supply of emergency switch board, out going feeders with the complainant company. Pursuant to the agreement entered into between the first accused of which the second and the third accused are directors, the first accused company handed over two cheques bearing Nos. 493323 for Rs. 6, 57, 000 and 493325 for Rs. 13, 77, 000 drawn on the State Bank of Mysore, Abiramapuram, Madras-18, in favour of the complainant dated July 1, 1991".


These allegations are to be read in the context and in the background of the relevant allegations made in para 4 of the complaint which are as follows :


"The first accused as the company and the second and the third accused as directors in the first accused company are jointly and severally liable inasmuch as the second and the third accused were in charge of and responsible for the conduct of the business of the first accused company at the time of committing the offence."


If the allegations made in para 3 of the complaint are read conjointly and in the background of the allegations made in para 4 of the complaint, it would be apparent that entering into the agreement with the complainant and issuance of the cheques by the first accused company were done by the two accused who are said to be the directors of the first accused company and they are responsible for the conduct of the business of the first accused company. In para 4 of the complaint, at the beginning it is alleged that the complainant sent a letter to accused Nos. 1 to 3 bringing to their notice that the cheques given by the first accused were returned and requesting them to settle the matter by sending a demand draft. This allegation is to be read along with the allegations made in the later part of para 3 of the complaint. Taking the totality of the allegations made in the complaint, it cannot be stated that the complaint stopped with mere allegations regarding the third accused and as repeating what has been stated in section 141 of the Act.


Mr. Gopinath relied upon Shital N. Shah v. ITO [1990] LW (Crl.) 478 ; In it this court had occasion to consider the criminal liability of the partners of the firm for an offence punishable under section 276B, read with section 2 78B of the Income-tax Act, 1961. Mr. V. Gopinath, who appeared for the petitioners in that case also, had contended that in the complaint, except stating that at the material time, the petitioners who were partners of the firm were in charge of and responsible for the conduct of the business of the firm, nothing more had been alleged by reference to any act performed by them, even to remotely connect them with the offences alleged. His submission was accepted by this court. The learned judge has observed that he is unable to agree with learned counsel for the respondent that the allegations in the complaint are sufficient and only evidence may have to be let in further, to indicate the role played by each one of the partners to connect them with the responsibility they owed to the firm in its day to day activity. Mr. K. S. Rajagopalan, relied upon Oswal Ispat Udyog v. Salem Steel Suppliers [1991] LW (Crl.) 70. In it, this court had occasion to consider the liability of the partners for an offence under section 138 of the Act. It was contended that petitioners Nos. 3 to 11 in that case, who were partners of the firm could not be made liable. The learned judge has rejected that contention by holding (at page 517 of 78 Comp Cas)


"Learned counsel for the petitioners would contend that the second petitioner alone being in charge of the management of the firm, he alone can be considered to be in charge of the conduct of the business of the firm and the other partners, viz. petitioners Nos. 3 to 11 by virtue of their being mere partners cannot at all be held liable. This submission is absolutely untenable as it is shorn of reality of the situation, especially when there is a specific averment in the complaint that petitioners Nos. 3 to 11 are actively taking part in running the business of the firm"


While narrating the facts of the case, the learned judge has stated, in para 1, as follows (at page 512) :Petitioner No. 1 is a registered partnership firm and they are steel re-rollers, fabricators, manufacturers and engineers. Petitioners Nos. 2 to 11 are the partners. The second petitioner is in charge of the management of the firm, while petitioners Nos. 3 to 11 are also actively taking part in the running of the business of the firm.


In Delhi Municipality v. Ram Kishan Rohtagi, the apex court had occasion to consider a similar provision regarding the criminal liability of the directors of the company for an offence under the Prevention of Food Adulteration Act. In it, the apex court had observed as follows (at page 70) :


"So far as the manager is concerned, we are satisfied that from the very nature of his duties it can be safely inferred that he would undoubtedly be vicariously liable for the offence ; vicarious liability being an incident of an offence under the Act. So far as the directors are concerned, there is not even a whisper nor a shred of evidence nor anything to show, apart from the presumption drawn by the complainant, that there is any act committed by the directors from which a reasonable inference can be drawn that they could also be vicariously liable. In these circumstances, therefore, we find ourselves in complete agreement with the argument of the High Court that no case against the directors (accused Nos. 4 to 7) has been made out ex facie on the allegations made in the complaint and the proceedings against them were rightly quashed."


As has been rightly pointed out by Mr. K. S. Rajagopalan, in the instant case it cannot be stated that there is not even a whisper nor a shred of evidence nor anything to show against petitioners Nos. 2 and 3 who are the directors of the company. There are specific allegations in paras 3 and 4 of the complaint that they were in charge of and responsible for the affairs of the company. On the facts of this case, I am unable to accept the submission made by Mr. Gopinath that except the repetition of the words mentioned in the complaint, nothing more is alleged. Taking that view of the matter, the complaint cannot be quashed as against the third accused.To consider the second submission made by Mr. V. Gopinath, the relevant allegations made in para 3 of the complaint which I have extracted above, are to be referred to again. That would show that the first accused company had entered into an agreement of bills discounting for supply of emergency switch board, etc., with the com

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plainant and pursuant to that agreement the first accused company handed over two cheques. In the notice preceding the complaint, it is stated that Power Pak Engineers and Agencies Pvt. Ltd. have drawn hundis for a sum of Rs. 13, 77, 000 and Rs. 6, 57, 000 against two invoices raised by them, on the first accused company for the supply of switch boards and the same was accepted by the first accused company and based on that acceptance for payment of hundi, Power Pak Engineers and Agencies Pvt. Ltd. have endorsed the hundis in favour of the complainant and availed of the bills discounting facilities from them. A conjoint reading of the complaint and the notice would show that only in terms of the agreement referred to in the complaint this was done. So it cannot be stated that the issuance of the cheques had nothing to do with the legal liability on the part of the accused company. So, I am unable to accept the submission of Mr. V. Gopinath that the cheques were not issued for discharge of any legal liability. Since both the submissions made by Mr. Gopinath, fail, the inevitable result is that the petition has to be dismissed and shall stand dismissed.
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