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CHEQUE BOUNS CASE

In order to bring application of Section 138 the complaint must show: 1 That Cheque was issued; 2. The same was presented; 3. It was dishonored on presentation; 4. A notice in terms of the provisions was served on the person sought to be made liable; 5. Despite service of notice, neither any payment was made nor other obligations, if any, were complied with within fifteen days from the date of receipt of the notice. 11. Section 141 of the Act in terms postulates constructive liability of the Directors of the company or other persons responsible for its conduct or the business of the company. x”16. Section 141 of the Act does not say that a Director of a company shall automatically be vicariously liable for commission of an offence on behalf of the Company. What is necessary is that sufficient averments should be made to show that the person who is sought to be proceeded against on the premise of his being vicariously liable for commission of an offence by the Company must be in charge and shall also be responsible to the Company for the conduct of its business. “….Section 141 raises a legal fiction. By reason of the said provision, a person although is

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 REPORTABLE

 IN THE SUPREME COURT OF INDIA

 CRIMINAL APPELLATE JURISDICTION

 CRIMINAL APPEAL NO.1103 OF 2003

Ramrajsingh ..Appellant

 Versus

State of M.P. and Anr. ..Respondents

 JUDGMENT

Dr. ARIJIT PASAYAT, J.

1. Challenge in this appeal is to the judgment of a learned Single Judge

of the Madhya Pradesh High Court, Indore Bench, dismissing the revision

application filed by the appellant questioning his conviction for an offence

relating to Section 138 of the Negotiable Instruments Act, 1881 (in short the

`Act').
2. Respondent No.2-complainant was dealing in the business of

transportation. The appellant was the General Manager of J.K. Utility

Division of J.K. Synthetics Ltd. whereas the absconding accused Anup

Chaturvedi was the Finance Manager. Both were working under the

Managing Director Manoj Kumar Mathur. The non-applicant and the co-

accused Anup Chaturvedi placed order No.U/QMR/Coal 96028 dated

7.8.1996 with one Vinayak Coal Corporation. In pursuance of this order, the

coal was transported by Maruti Road Carrier, Indore which is owned by the

appellant. The transportation charges of Rs.9,45,000/- were paid through

four cheques. All the four cheques were given to the appellant by the co-

accused.

3. As per the information given by the co-accused to the appellant, the

appellant placed the cheques before the Bank for encashment but the same

were dishonored. All the cheques were issued on Bank of Rajasthan Branch

Jhalawad. The cheques were returned dishonoured with the endorsement of

`Stop Payment'. On 28.11.1996, a registered notice was sent to the

Company which was served by "Registered Acknowledgment Due" on

6.12.1996. Even thereafter payments were not made. Therefore, the

complaint was filed by respondent No.2 against the appellant and co-

 2
accused Anup Chaturvedi and Manoj Mathur and the case was proceeded

against the appellant and absconding accused Anup Chaturvedi.

4. Respondent No.2 had stated in the complaint that appellant was

working in the company. The order of transportation was placed by him, the

material was received by him and the cheques were given to him by the

appellant and co-accused Anup Chaturvedi. Out of four cheques, the

complaint in regard to the cheque amount of Rs.2,00,000/- dated 12.9.1996

was not pressed because a separate complaint was filed for dishonour of this

cheque.

5. The learned Judicial Magistrate, First Class, Indore, found the

appellant guilty and the appeal was dismissed by learned Additional

Sessions Judge, Indore. Both the courts found the appellant guilty. The

appellant's stand was that he was not in charge and responsible for the

conduct of the business of the company and, therefore, he should not have

been held guilty. The cheques were not signed by him and a notice under

Section 138 proviso (b) of the Act was not given in his name. The High

Court did not accept the stand and dismissed the revision application.

 3
6. Learned counsel for the appellant submitted that there is no evidence

that the appellant was in charge and responsible for the conduct of the

business of the company. A notice was not given to him. There was no

specific role attributed to him in the complaint petition. Therefore, the

conviction as recorded cannot be maintained.

7. Learned counsel for respondent No.2-complainant supported the

judgment of the High Court.

8. It appears that the accused No.3 (Manoj Mathur) was discharged.

9. In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr. (2007(4)

SCC 70) it was inter-alia observed held as follows:

 "16. Section 141 of the Act does not say that a Director
 of a company shall automatically be vicariously liable
 for commission of an offence on behalf of the Company.
 What is necessary is that sufficient averments should be
 made to show that the person who is sought to be
 proceeded against on the premise of his being
 vicariously liable for commission of an offence by the
 Company must be in charge and shall also be responsible
 to the Company for the conduct of its business.

 xx xx xx

 4
 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 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 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 Company. Requirements laid down
 therein must be read conjointly and not disjunctively.
 When a legal fiction is raised, the ingredients therefor
 must be satisfied.

10. In N.K. Wahi v. Shekhar Singh and Ors. (2007 (9) SCC 481) it was

observed as follows:

 "6. Chapter XVII has been incorporated under the Act with
 effect from 1.4.1989. In certain contingencies referred to under
 Section 138 of the Act on the cheques being dishonored a new
 offence as such had been created. But to take care of the
 offences purported to have been committed provisions of sub-
 section (1) to Section 141 of the Act come into play. It reads as
 under:-

 "141 - Offence 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,

 5
 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."

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 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.

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
incharge and responsible for the 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 evidence the net result would be that complaint would
not be entertainable.

9. Section 138 of the Act reads as under:-

 "138. Dishonour of cheque for insufficiency,
 etc., of funds in the account -

 Where any cheque drawn by a person on an
 account maintained by him with a banker for

 6
 payment of any amount of money to another
 persons from out of that account for the discharge,
 in whole or in part, of any debt or other liability, is
 returned by the bank unpaid, either because of the
 amount of money standing to the credit of that
 account is insufficient to honour the cheque or that
 it exceeds the amount arranged to be paid from
 that account by an arrangement made with that
 bank, such person shall be deemed to have
 committed an offence and shall, without prejudice
 to any other provisions of this Act, be punished
 with imprisonment for a term which may be
 extended to two years, or with fine which may
 extend to twice the amount of the cheque, or with
 both."

10. In order to bring application of Section 138 the
complaint must show:

1 That Cheque was issued;
2. The same was presented;
3. It was dishonored on presentation;
4. A notice in terms of the provisions was served on the
person sought to be made liable;
5. Despite service of notice, neither any payment was made
nor other obligations, if any, were complied with within fifteen
days from the date of receipt of the notice.

11. Section 141 of the Act in terms postulates constructive
liability of the Directors of the company or other persons
responsible for its conduct or the business of the company.

 xx xx xx

13. In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and
Another (2007 (4) SCC 70) it was, inter-alia, held as follows:-

 "18. To sum up, there is almost unanimous
 judicial opinion that necessary averments ought to

 7
be contained in a complaint before a person can be
subjected to criminal process. A liability under
Section 141 of the Act is sought 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. Section 141of 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 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 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.

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 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
141 cannot be said to be satisfied.

 8
 (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 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 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 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 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) of Section 141".

14. The matter was again considered in Sabitha Ramamurthy
and Anr. v. R.B.S. Channabasavaradhya and Anr. (2006 (9)
SCALE 212) and Saroj Kumar Poddar v. State (NCT of Delhi)
and Anr. (JT 2007 (2) SC 233). It was, inter -alia, held as
follows:

 "....Section 141 raises a legal fiction. By
 reason of the said provision, a person although is

 9
 not personally liable for commission of such an
 offence would be vicariously liable therefor. Such
 vicarious 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 be made vicariously liable, strict
 compliance of the statutory requirements would be
 insisted...."

11. When the factual background of the present case is considered in the

light of the principles referred to in Neeta Bhalla and N.K. Wahi cases

(supra), the inevitable conclusion is that the appeal is bound to succeed.

The conviction as recorded cannot be maintained. The appeal is allowed.

 ........................................J.
 (Dr. ARIJIT PASAYAT)

 ........................................J.
 (LOKESHWR SINGH PANTA)

 ........................................J.
 (P. SATHASIVAM)
New Delhi,
April 15, 2009 10
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