Gujarat State Fertilizer Co. Ltd. v. A.K. Singhania & Vikram Prakash

14 Esslon Synthetics Ltd.

4. All the business and financial affairs of the accused company No. 14 are decided, organized, administered by accused No. 1 being Managing Director and accused No. 2 being Deputy Managing Director, accused NO. 3 Chairman, accused No. 4 Whole Time Director, accused No. 5 Finance Director with consultation of other Directors from accused Nos. 6 to 12 and accused No. 13 was Sr. Manager (Finance) of accused company No. 14. So accused Nos. 1 to 12 and accused No. 13 are also responsible for all the transactions and business affairs done on behalf of accused Company NO. 14 and are responsible for all the financial affairs and administration of accused Company No. 14.” Page 4 A.K. Singhania is the accused No. 7 and Vikram Prakash is accused No. 9 in this complaint. In Complaint Case No. 1293 of 1996, the allegations with which we are concerned in these appeals read as follows: “4. All the business and financial affairs of the accused company No. 1 are decided, organized, administered by the accused No. 2 being Managing Director and accused No. 3 being Managing Director, accused No. 4 Chairman, accused No. 5 Whole Time Director, accused No. 6 Finance Director with consultation of other Directors from accused Nos. 7 to 13 and accused No. 14 was Sr. Manager (Finance) of accused No. 1. At the time the offence was committed, they were incharge of and were responsible to the company for the conduct of the business of the accused company. Therefore, they are responsible for day to day affairs and all the transactions and business done on behalf of the accused Company No. 1 and they are also responsible for all the financial affairs and administration of accused company No. 1.” A.K. Singhania and Vikram Prakash have been arrayed as accused Nos. 8 and 10 in this complaint and in all other complaints, the allegations against Page 5 A.K. Singhania are identical to what have been alleged in the Complaint Case No. 331 of 1996. Taking into account the allegations made in the respective complaints, the learned Magistrate took cognizance of the offence, issued process to the accused aforesaid besides other accused to face trial for commission of the offence under Section 138 of the Act. Vikram Prakash, aggrieved by the order issuing summons to face trial under Section 138 of the Act in different complaints, filed applications under Section 482 of the Code of Criminal Procedure for quashing the order taking cognizance and issuing process. The applications filed by said Vikram Prakash were registered as Criminal Miscellaneous Application Nos. 13393-13399 of 2007. The High Court by its common order dated January 20, 2012 allowed all the applications and quashed his prosecution. While doing so, the High Court held as follows: Page 6 “7.…………It is to be noted that as such there are general allegations and averments against the applicant in the complaints, however there are no specific allegations and averments in the complaint against the applicant with respect to transaction for which the cheques were issued by the accused no. 14 company. Under the circumstance, on the ground that applicant was non Executive Director of the Company on the board of the company, which is not disputed by the complainant, the applicant cannot be prosecuted for the offence under Sections 138 r/w 141 of the Negotiable Instruments Act and cannot be held vicariously liable for the offence alleged to have been committed by the accused no. 14 company. Under the circumstance, this Court is of opinion that this is a fit case to exercise the powers under Section 482 of the Code of Criminal Procedure and to quash and set aside the impugned complaint/criminal case qua applicantoriginal accused no. 9……” It is this common order which has been assailed by the Gujarat State Fertilizer Company Ltd. in the special leave petitions filed by it. A.K. Singhania also, aggrieved by the order issuing process under Section 138 of the Act, filed separate applications for quashing the entire prosecution including the aforesaid order under Page 7 Section 482 of the Code of Criminal Procedure. All the applications filed by A.K. Singhania were taken together by the High Court for consideration and by the impugned order the applications filed by him have been dismissed. While doing so, the High Court observed as follows: “9. As the paragraphs of the complaint reproduced in earlier part of decision specifically para 4 and subsequent paragraphs would reveal that the applicant in the capacity of Director was responsible for business affairs and he was in-charge of the Company. Not only that but nowhere it can be said that the applicant was non-Executive Director and even if it is so the said argument is in realm of defence to be decided by Court trying the case under the Negotiable Instruments Act. Since sufficient averments attracting of Section 138 of Negotiable Instrument Act are the foundation of the complaint and it is further averred that cheques were issued with mischievous, dishonest intention, knowingly and willingly to cheat the complainant company. Arguments canvassed by learned advocate for the applicant do not require any further deliberation in exercise of powers under Section 482 of the Code since quashing the complaint would not secure end of justice but would result into miscarriage of justice………..” Page 8 A.K. Singhania, aggrieved by the aforesaid common order, has preferred these special leave petitions. Leave granted. We have heard Mr.Ranjit Kumar, learned Senior Counsel on behalf of the accused A.K. Singhania and Mr.Ashok Kr. Srivastava, learned Senior Counsel on behalf of Vikram Prakash whereas the complainant, Gujarat State Fertilizer Company Ltd. is represented by Mr. Jayant Bhushan, learned Senior Counsel. Mr. Ranjit Kumar appearing on behalf of the accused submits that necessary averments that at the time the offence was committed, the accused were in-charge of and responsible for the conduct of the business of the company have not been averred, which is sine qua non for proceeding against the Directors of the company. He has drawn our attention to the averments made in the complaints, which we have reproduced in the preceding paragraphs of this judgment and submits that mere assertion that these accused persons were the Directors of the company is not sufficient to make them liable under Section 141 of the Act. Mr. Page 9 Jayant Bhushan however, submits that there is clear averment in the complaint that these accused persons were the Directors of the company and, in fact, incharge of and responsible for the conduct of the business of the company and, hence, they were rightly summoned to face the trial. He points out that the judgment and order of the High Court quashing the prosecution of accused Vikram Prakash is under challenge in this batch of appeals and accused A.K. Singhania cannot take benefit of the said order and the fate of both the accused shall depend upon the decision in all these appeals. Mr. Ranjit Kumar submits that on same set of facts when the prosecution of the accused Vikram Prakash has been quashed, there does not seem any justification to decline the prayer of the accused A.K. Singhania. In view of rival submissions, we proceed to consider the exact allegations made against the accused A.K. Singhania and accused Vikram Prakash. It is not in dispute that allegations against both the accused in different complaints are one and the Page 10 same. In Complaint Case No. 331 of 1996, the allegation is that “all business and financial affairs of the accused company are decided, organized, administered by Accused Nos. 1 to 5”. It has further been alleged that Accused Nos. 1 to 5 do so with consultation of other Directors namely, Accused Nos. 6 to 12. In view of aforesaid, according to the complainant, accused Nos. 1 to 13 are also responsible for all the transactions and business affairs, financial affairs and administration done on behalf of the accused company. It is relevant here to state that A.K. Singhania and Vikram Prakash are accused Nos. 7 and 9 in this complaint. The averments made in the complaint nowhere suggest that these two accused, at the time the offence was committed, were in-charge of and responsible for the conduct of the business of the company. According to the complainant itself, it was accused Nos. 1 to 5 who were taking decisions and the allegation that in taking the decisions they used to consult these accused also will not mean that these two accused were at the time the offence was Page 11 committed, were in-charge of and responsible for the conduct of business of the company. In complaint Case No. 1293 of 1996 and all other complaints with which we are concerned in the present appeals the allegation is that “all business and financial affairs of the accused company No.1, are decided, organized, administered by accused Nos. 2 to 6 and in consultation of other directors i.e. from accused Nos. 7 to 13”. It has further been averred that at the time the offence was committed “they were incharge and responsible to the company for the conduct of the business” and, therefore, “they are responsible for day to day affairs and transaction, business and all financial affairs of the accused company.” Mr. Ranjit Kumar submits that the aforesaid averments are not sufficient and from that it cannot be inferred that accused A.K. Singhania and accused Vikram Prakash have been alleged to be in-charge and responsible for the conduct of the business of the company at the time the offence was committed. He points out that A.K. Singhania is accused No. 8 whereas accused Vikram Prakash is Page 12 accused No. 10 in these complaints. Mr. Jayant Bhushan, however, joins issue and submits that the substance of the accusation clearly indicates that the two accused were in-charge and responsible for the conduct of the business of the company at the time of the offence. We have perused the complaints and, in fact, the relevant portions of the allegations have been reproduced in the foregoing paragraphs of the judgment. From that it is difficult to infer that there is any averment that these two accused were in-charge of and responsible for the conduct of the business of the company at the time the offence was committed. The allegations in the complaints in sum and substance mean that business and financial affairs of the company used to be decided, organized and administered by accused Nos. 2 to 6 and while doing so, other Directors including the two accused herein were consulted. The inference drawn by the complainant on that basis that these two accused, therefore, are in-charge and responsible to the company for the conduct of its business, is Page 13 absolutely misconceived. We are, therefore, of the opinion that essential averment in the complaints is lacking. In case of offence by company for dishonour of cheque, the culpability of the Directors has to be decided with reference to Section 141 of the Act, same reads as follows:

Page 17 This Court in the case of National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330, after reviewing all its earlier judgments summarized the legal position as follows: