Vallurupalli Raja Sekhar Reddy & Ors. v. The State of Maharashtra & Anr.

1. Rule. By consent of the parties, taken up for hearing forthwith.

2. Petitioners in these two petitions, fled under Article 227 of the Constitution of India challenge the order dated 13th October, 2017 (In Writ Petition NO. 3710/2018) and order dated 11th September, 2017 (in Writ Petition No. 3711/2018) passed in C.C. NO. 7854/SS/2016 and C.C. No.9698/SS/2016 respectively by the Metropolitan Magistrate, Mumbai by which the petitioners were summoned as accused in the complaint fled by the respondent no.2 for alleged offences punishable under Section 138 read with Section 141 of the Negotiable Instruments Act (“Act” for short).

3. This Court vide order dated 16th August, 2019 rejected the petition qua petitioners no.1 to 6 and 8. Rane 3/14 WP-3710-2018

4. Insofar as, petitioners no.7, 9 and 10 are concerned, it was argued that these petitioners being “Independent Directors” could not have been prosecuted under Section 138 read with Section 141 of the Act. On this point, the complainant was directed to verify the position and submit. Accordingly, the respondent no.2 fled an Affdavit of one, Snehal Sane and submitted that petitioners no.7, 9 and 10 are “Independent Directors” of accused-Company and therefore the complainant is not desirous of pursuing the subject complaint fled against them.

5. In the fact situation, it is to be ascertained whether the complaint against petitioner no.11 a Company Secretary of the accused Company, were maintainable or not.

6. Heard Counsel for the parties. Perused the complaints. Rane 4/14 WP-3710-2018

7. Learned Counsel for the petitioners would submit that under Section 141 of the Act, when a cheque issued by a company is dishonoured, in addition to company, following persons are deemed to be guilty of the offence and shall be liable to be proceeded against and punished; (i)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; (ii)any Director, manager, secretary or other offcer of the company with whose consent and connivance, the offence under Section 138 has been committed; and (iii)any Director, manager, secretary or other offcer of the company whose negligence resulted Rane 5/14 WP-3710-2018 in the offence under Section 138 of the Act, being committed by the company.

8. It is argued that, a person who is responsible to the company for the conduct of business of the company and is in-charge of the business of the company is vicariously liable by reason only of his fulflling the requirements of sub-section (1). It is thus submitted, if the person responsible to the Company for the conduct of business, was not in charge, of conduct of the business of the Company, then he can be made liable under Section 141(2) of the Act, only if the offence was committed with his consent or connivance or as a result of negligence. It is argued that, the complaint, does not aver that either the offence was committed with consent, knowledge or connivance of petitioner no.11 nor it is alleged that, offence was result of negligence on the part of petitioner no.11 nor there is a specifc averment, that petitioner was in charge of conduct of business of the company and therefore, Rane 6/14 WP-3710-2018 complaint against petitioner no.11 were unsustainable.

9. Learned Counsel, in support of her contentions relied on the judgment of the Hon’ble Supreme Court in the case of K.K. Ahuja Versus. V.K. Vora & Another, reported in (2009) 10 Supreme Court Cases 48 wherein position under Section 141 of the Act has been summarised; thus; (i)if the accused is the, Managing Director or a Joint Managing Director, it is not necessary to make an averment in the complaint that he is ‘in charge’ of, and ‘is responsible to the company’, for the conduct of the business of the company. It is suffcient, if averment is made that accused was the Managing Director or Joint Managing Director at the relevant time; Rane 7/14 WP-3710-2018

(ii) in the case of Director or an offcer of the company, who signed the cheque on behalf of the company, there is no need to make a specifc averment that, he was in charge of and was responsible to the company, for the conduct of the business of the company. The very fact that the dishonoured cheque was signed by him on behalf of the company, would give rise to responsibility under sub-section (2) of Section

141. (iii)in case of a Director, Secretary or Manager [as defned in Section 2(24) of the Companies Act], an averment in the complaint that, he was ‘in charge’ of, and ‘was responsible to the company’, for the conduct of business of the company is necessary to bring the case under Section 141(1) of the Act. No further averment would be necessary in the complaint, though some particulars will be desirable. They can also Rane 8/14 WP-3710-2018 be made liable under Section 141(2) by making necessary averments relating to consent and connivance or negligence, in the complaint, to bring the matter under that sub-section. (iv)Other offcers of a company cannot be made liable under sub-section (1) of Section 141. Other offcers of a company can be made liable only under sub-section (2) of Section 141, by averring in the complaint, their position and duties in the company and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence.

10. In this case, petitioner no.11 is a Company Secretary. Therefore, he is a person, responsible to the company for the conduct of the business, of the company within the meaning of Companies Act, 1956. To ascertain factual position, whether petitioner no.11, being Company Secretary was ‘in charge’ of and was Rane 9/14 WP-3710-2018 responsible to the company for conduct of business, let me read and reproduce relevant averments made in the complaint.

11. The averments in paragraphs no. 2, 3 and 5 of the complaint are: “2. The Complainant states that Accused no.1 is a Limited Company is in the business of Infrastructure. Accused no.2 to 12 are the Directors and CFO and Accused No.13 is Company Secretary of Accused No.1. The Complainant states that Accused No.2 to 13 are looking after and responsible for the day to day affairs, conduct and management of business of Accused No.1. (emphasized) “3. The Complainant states that Accused No.1, through Accused No.9 being Authorised Signatory entered into Facility Agreement dt.28-Mar-2010 with L&T Infrastructure Finance Co. Ltd. For sum of Rs.100 Crores [hereinafter referred to as the ‘said agreement’]. Under the said Rane 10/14 WP-3710-2018 Facility Agreement L & T Infrastructure Finance Co. Ltd. sanctioned a Finance Facility of Rs.100 Crores to Accused No.1 and have disbursed a sum of Rs.100 Crores. The Complainant craves leave to refer to and rely upon the said Facility agreement, as and when produced before this Hon’ble Court.” “5. The Complainant states that vide Assignment Agreement dt.31-July-2013 by and between L&T Infrastructure Finance Co. Ltd. and the Complainant; L&T Infrastructure Finance Co.Ltd., being Assignor, has assigned the Loan of Rs.68,97,39,582/- (out of Loan of Rs.100 Crores) to the Complainant being Assignee. The Complainant further states that vide letter dt.01-Aug-2013, the Complainant informs to Accused No.1 regarding execution of the Assignment Agreement and Accused No.9 being Authorised Signatory of Accused No.1 and with the knowledge and consent of Accused No.2 to 8 and 10 to 13 has acknowledged the same. The Complainant further states that there Rane 11/14 WP-3710-2018 was no dispute about the repayment terms and conditions of the Assignment Agreement entered into between Complainant and L&T Infrastructure Finance Co.Ltd.” (emphasized)

12. Thus, the averments are not to the effect that petitioner no.11 was ‘in charge’ of, but to the effect that, he was looking after and responsible for the day-to-day affairs, conduct and management of accused no.1- Company. Expression ‘in charge’ and ‘looking after’ the affairs, conduct of respondent company, are distinct. Section 141 uses the words “was in-charge of, and was responsible to the company for the conduct of the business of the company”. In the case of K.K. Ahuja (supra), the Apex Court has held that the, person who can be made vicariously liable under sub-section (1) of Section 141 is a person who is responsible to the company for the conduct of the business of the company, and in addition, is also in-charge of the business of the company (emphasized). However, the Rane 12/14 WP-3710-2018 averments in the complaint are only to say that, petitioner no.11 (accused no.13) was looking after and responsible for the day-to-day affairs, conduct and management of the accused-company with accused nos.[2] to 12.

13. In K.K. Ahuja (supra), the Apex Court in para-23 has observed as under: “Therefore, if a person does not meet the frst requirement, that is being a person who is responsible to the company for the conduct of the business of the company, neither the question of his meeting the second requirement (being a person in charge of the business of the company), nor the question of such person being liable under sub- section (1) of section 141 arises. To put it differently, to be vicariously liable under sub- section (1) of Section 141, a person should fulfll the ‘legal requirement' of being a person in law (under the statute overning companies) responsible to the company for the conduct of the business of the company and also fulfll the ‘factual requirement' of Rane 13/14 WP-3710-2018 being a person in charge of the business of the company.”