1. The question as to who can be said to be persons "in-charge of, andwas responsible to the company for the business of the company" referredto in section 141 of the Negotiable Instruments Act, 1881 (for short 'theAct') arises for consideration in this appeal by special leave by acomplainant.
2. The appellant filed two complaints (Crl. Comp.No.58/2001 and59/2001) in the Court of the Metropolitan Magistrate, Delhi, against M/s.Motorol Speciality Oils Ltd. (`the Company' for short) and eight othersunder section 138 of the Act. The first complaint was in regard to dishonourof five cheques (each for Rs.5,00,000/-, all dated 28.2.2001). The secondcomplaint was in regard to dishonour of three cheques (for Rs.3 lakhs, 3lakhs and 10 lakhs dated 31.10.2000, 30.11.2000 and 20.12.2000respectively). The cheques were alleged to have been drawn in favour of theappellant's proprietary concern (M/s Delhi Paints & Oil Traders) by thecompany represented by its Chairman. In the said complaints, the appellanthad impleaded nine persons as accused, namely, the company (A-1), itsChairman (A-2), four Directors (A-3 to A-6) as also its Vice-President(Finance), General Manager and Deputy General Manager (A-7, A-8 and A-9 respectively). In the complaint the complainant averred that "at the time ofthe commission of offence, accused 2 to 9 were in-charge of and responsiblefor the conduct of day to day business of accused No.1" and that thereforethey were deemed to be guilty of offence under section 138 read withsection 141 of the Act and section 420 of the Indian Penal Code. Theappellant also alleged that respondents 2 to 9 were directly and activelyinvolved in the financial dealings of the company and that the accused hadfailed to make payment of the cheques which were dishonoured. In the pre-summoning evidence, the appellant reiterated that accused 2 to 9 wereresponsible for the conduct of day to day business of first accused companyat the time of commission of offence. The learned Magistrate by order dated3.10.2001 directed issue of summons to all the accused.
3. Accused no. 9 (first respondent herein) filed two petitions undersection 482 Cr.P.C. for quashing the proceedings against him on the groundthat as "Deputy General Manager", he was not "in-charge of and wasresponsible to the company for the conduct of the business of the company".He also contended that merely stating that he was directly and activelyinvolved in the financial dealings of the accused or was responsible for theconduct of day to day business would not be sufficient to fasten criminalliability on him. He submitted that neither the complaint nor the swornstatement gave any particulars of the part played by him or part attributed tohim in the alleged offence. At the hearing before the High Court, theLearned counsel for the appellant-complainant conceded that details as tohow the first respondent could be said to be "in charge of, and wasresponsible to the company for the conduct of the business of the company"were not given in the complaint or the statement on oath. It was alsoconceded that the averments necessary to make out an offence under section420 IPC were not contained in the complaint. The High Court by order dated10.10.2002 allowed the said petitions and quashed the orders summoningthe first respondent on the ground that he was not a signatory to the chequesnor was a party to the decision to allow the cheques to be dishonoured. Thesaid order is under challenge.
4. The appellant contends that having regard to the specific averment inthe complaint that the accused 2 to 9 were in charge of and responsible forthe conduct of day to day business of the company, the order summoning thefirst respondent could not have been quashed under section 482 Cr.P.C. It isalso submitted that at the stage of summoning the accused, when evidencewas yet to be led by the parties, the High Court committed an error inquashing the order summoning the first respondent, on the basis of anunwarranted assumption that the first respondent was not responsible for orinvolved in the conduct of the business of the company. Reliance is placedon the decision of this Court in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla& Anr. [2005 (8) SCC 89 for short `SMS Pharma (I)'].
5. Section 141 of the Act deals with offences by companies. Relevantportions of the said section are extracted below :"141. Offences by companies.--(1) If the person committing an offenceunder section 138 is a company, every person who, at the time the offencewas committed, was in charge of, and was responsible to the company forthe conduct of the business of the company, as well as the company, shallbe deemed to be guilty of the offence and shall be liable to be proceededagainst and punished accordingly:xxxxx(2) Notwithstanding anything contained in sub-section (1), where anyoffence under this Act has been committed by a company and it isproved that the offence has been committed with the consent orconnivance of, or is attributable to, any neglect on the part of, any5director, manager, secretary or other officer of the company, suchdirector, manager, secretary or other officer shall also be deemed to beguilty of that offence and shall be liable to be proceeded against andpunished accordingly."Explanation - For the purposes of this section, -(a) "company means any body corporate and includes a firm or otherassociation of individuals; and(b) "director" in relation to a firm, means a partner in the firm.
6. A three-Judge Bench of this Court considered the scope of section141 of the Act in SMS Pharma (I) and held that it is necessary to specificallyaver in a complaint under Sections 138 and 141 of the Act, that at the timewhen the offence was committed, the person accused was in charge of, andresponsible for the conduct of business of the company and that in theabsence of such averment, section 141 cannot be invoked . This Court held:"What is required is that the persons who are sought to be made criminallyliable under Section 141 should be at the time the offence was committed,in charge of and responsible to the company for the conduct of thebusiness of the company. Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who werein charge of and responsible for conduct of business of the company at thetime of commission of an offence, who will be liable for criminal action. Itfollows from this that if a director of a Company who was not in charge ofand was not responsible for the conduct of the business of the company atthe relevant time, will not be liable under the provision. The liabilityarises from being in charge of and responsible for conduct of business ofthe company at the relevant time when the offence was committed and noton the basis of merely holding a designation or office in a company.Conversely, a person not holding any office or designation in a Companymay be liable if he satisfies the main requirement of being in charge of andresponsible for conduct of business of a Company at the relevant time.Liability depends on the role one plays in the affairs of a Company and noton designation or status. If being a Director or Manager or Secretary wasenough to cast criminal liability, the Section would have said so. Instead of"every person" the section would have said "every Director, Manager orSecretary in a Company is liable"....etc. The legislature is aware that it is acase of criminal liability which means serious consequences so far as theperson sought to be made liable is concerned. Therefore, only persons whocan be said to be connected with the commission of a crime at the relevanttime have been subjected to action.""To sum up, there is almost unanimous judicial opinion that necessaryaverments ought to be contained in a complaint before a person can besubjected to criminal process. A liability under section 141 of the Act issought to be fastened vicariously on a person connected with a company,the principal accused being the company itself. It is a departure from therule in criminal law against vicarious liability. A clear case should bespelled out in the complaint against the person sought to be made liable.Section 141 of the Act contains the requirements for making a personliable under the said provision. That the respondent falls within theparameters of section 141 has to be spelled out. A complaint has to beexamined by the Magistrate in the first instance on the basis of avermentscontained therein. If the Magistrate is satisfied that there are avermentswhich bring the case within section 141, he would issue the process. Wehave seen that merely being described as a director in a company is notsufficient to satisfy the requirement of section 141. Even a non-directorcan be liable under section 141 of the Act. The averments in the complaintwould also serve the purpose that the person sought to be made liablewould know what is the case which is alleged against him. This willenable him to meet the case at the trial."(emphasis supplied)This Court then proceeded identified the nature of allegations required to bemade against members of Board of Directors and person signing the chequeas follows :(i) Managing Director/Joint Managing Director: By virtue of the officethey hold, these persons are in charge of and responsible for the conductof business of the company. Therefore, they would fall under Section141(1), even though there is no specific averment against them. (ii) Person signing the cheque: The signatory of a cheque which isdishonoured, is clearly responsible for the act and will be covered undersub-section (2) of Section 141. Therefore, no special averment would benecessary to make him liable. (iii) Director: The fact that a person is a director of a company is not byitself sufficient to make him liable under Section 141 of the Act. Adirector in a company cannot be deemed to be in charge of andresponsible to the company for the conduct of its business. Therequirement of Section 141 is that the person sought to be made liableshould be in charge of and responsible for the conduct of the business ofthe company at the relevant time. This has to be averred, as there is nodeemed liability upon a director .
7. In Sabitha Ramamurthy vs. RBS Channabasavaradhya - 2006 (10)SCC 581, this Court re-stated the requirements of section 141 of Act thus, inthe context of a petition for quashing the process under Sec.482 Cr PC:"It may be true that it is not necessary for the complainant to specificallyreproduce the wordings of the section but what is required is a clearstatement of fact so as to enable the court to arrive at a prima facie opinionthat the accused are vicariously liable. Section 141 raises a legal fiction.By reason of the said provision, a person although is not personally liablefor commission of such an offence would be vicariously liable therefor.Such vicarious liability can be inferred so far as a company registered orincorporated under the Companies Act, 1956 is concerned only if therequisite statements, which are required to be averred in the complaintpetition, are made so as to make the accused therein vicariously liable forthe offence committed by the company. Before a person can be madevicariously liable, strict compliance of the statutory requirements wouldbe insisted........... In a case where the court is required to issue summonswhich would put the accused to some sort of harassment, the court shouldinsist strict compliance with the statutory requirements."[emphasis supplied]
8. In Saroj Kumar Poddar v State (NCT of Delhi) - 2007 (3) SCC 693,while dealing with an appeal against the refusal to quash the order takingcognizance, by an Ex-Director who had resigned from the Board prior to thedate of issuance of the cheque, this Court held that making some baldaverment was not sufficient. In that case, the complaint contained thefollowing averments:"That Accused 1 is a public limited company incorporated and registeredunder the Companies Act, 1956, and Accused 2 to 8 are/were its Directorsat the relevant time and the said Company is managed by the Board ofDirectors and they are responsible for and in charge of the conduct andbusiness of the Company, Accused 1. However, cheques referred to in thecomplaint have been signed by Accused 3 and 8 for and on behalf ofAccused 1 Company."In spite of the averment that accused were Directors at the relevant time andwere responsible for and in charge of the conduct of the business of thecompany, this Court held that allegations in the complaint, even if taken tobe correct in their entirety, did not disclose any offence by the appellant, onthe following reasoning :"Apart from the Company and the appellant, as noticed hereinbefore, theManaging Director and all other Directors were also made accused. Theappellant did not issue any cheque. He, as noticed hereinbefore, hadresigned from the Directorship of the Company. It may be true that as toexactly on what date the said resignation was accepted by the Company isnot known, but, even otherwise, there is no averment in the complaintpetitions as to how and in what manner the appellant was responsible forthe conduct of the business of the Company or otherwise responsible to itin regard to its functioning. He had not issued any cheque. How he isresponsible for dishonour of the cheque has not been stated. Theallegations made in paragraph 3, thus, in our opinion do not satisfy therequirements of Section 141 of the Act."[emphasis supplied]
9. In two subsequent decisions - SMS Pharmaceuticals v. Neeta Bhalla -2007 (4) SCC 70 [for short 'SMS Pharma (II)'] and Everest Advertising (P)Ltd. v. State, Govt. of NCT of Delhi - 2007 (5) SCC 54, relating tocomplaints against Directors of a company, the very same two-Judge Benchwhich decided Saroj Kumar Poddar, clarified that the observations thereinthat `the complaint should contain averments as to how and in what mannerthe accused was responsible for the conduct of the business of the company,or otherwise responsible for its functioning' were with reference to theparticular facts of that case and should not be considered as a generalproposition of law. But latter decisions dealing with liability of directors -N. K. Wahi vs. Shekhar Singh - 2007 (9) SCC 481, DCM FinancialServices Ltd. vs. J. N. Sareen - 2008 (8) SCC 1, and Ramraj Singh vs. Stateof MP (a decision of a Bench of three Judges) - 2009 (5) SCALE 670, havereiterated the principle laid down in Saroj Kumar Poddar. The prevailingtrend appears to require the complainant to state how a Director who issought to be made an accused, was in charge of the business of the company,as every director need not be and is not in charge of the business of thecompany. If that is the position in regard to a director, it is needless toemphasise that in the case of non-director officers, there is all the more theneed to state what his part is with regard to conduct of business of thecompany and how and in what manner he is liable.
10. Having regard to section 141, when a cheque issued by a company(incorporated under the Companies Act, 1956) is dishonoured, in addition tothe company, the following persons are deemed to be guilty of the offenceand shall be liable to be proceeded against and punished :(i) every person who at the time the offence was committed, was incharge of and was responsible to the company for the conduct of thebusiness of the company; (ii) any Director, Manager, Secretary or other officer of the company withwhose consent and connivance, the offence under section 138 has beencommitted; and (iii) any Director, Manager, Secretary or other officer of thecompany whose negligence resulted in the offence under section 138 ofthe Act, being committed by the company.While liability of persons in the first category arises under sub-section (1) ofSection 141, the liability of persons mentioned in categories (ii) and (iii)arises under sub-section (2). The scheme of the Act, therefore is, that aperson who is responsible to the company for the conduct of the business ofthe company and who is in charge of business of the company isvicariously liable by reason only of his fulfilling the requirements of sub-section (1). But if the person responsible to the company for the conduct ofbusiness of the company, was not in charge of the conduct of the business ofthe company, then he can be made liable only if the offence was committedwith his consent or connivance or as a result of his negligence.
11. The criminal liability for the offence by a company under section 138,is fastened vicariously on the persons referred to in sub-section (1) of section141 by virtue of a legal fiction. Penal statutes are to be construed strictly.Penal statutes providing constructive vicarious liability should be construedmuch more strictly. When conditions are prescribed for extending suchconstructive criminal liability to others, courts will insist upon strict literalcompliance. There is no question of inferential or implied compliance.Therefore, a specific averment complying with the requirements of section141 is imperative. As pointed out in K. Srikanth Singh vs. North EastSecurities Ltd - 2007 (12) SCC 788, the mere fact that at some point of time,an officer of a company had played some role in the financial affairs of thecompany, will not be sufficient to attract the constructive liability undersection 141 of the Act.
12. Sub-section (2) of section 141 provides that a Director, Manager,Secretary or other officer, though not in charge of the conduct of thebusiness of the company will be liable if the offence had been committedwith his consent or connivance or if the offence was a result of anynegligence on his part. The liability of persons mentioned in sub-section (2)is not on account of any legal fiction but on account of the specific partplayed - consent and connivance or negligence. If a person is to be madeliable under sub-section (2) of section 141, then it is necessary to averconsent and connivance, or negligence on his part.
13. This takes us to the next question under sub-section (1) of section 141,as to (i) who are the persons who are responsible to the company for theconduct of the business of the company, and (ii) who could be said to be incharge and was responsible to the company for the conduct of the businessof the company.
14. The words "every person who, at the time of the offence wascommitted, was in charge of, and was responsible for the conduct of thebusiness of the company" occurs not only in section 141(1) of the Act but inseveral enactments dealing with offences by companies, to mention a few -Section 278 B of the Income Tax Act, 1961, Section 22C of MinimumWages Act, 1948, Section 86A of the Employees State Insurance Act, 1948,Section 14A of Employees Provident Fund and Miscellaneous ProvisionsAct, 1952, Section 29 of Payment of Bonus Act, 1965, Section 40 of The Air(Prevention and Control of Pollution) Act, 1981 and section 47 of Water(Prevention and Control of Pollution) Act, 1974. But neither section 141(1)of the Act, nor the pari materia provisions in other enactments give anyindication as to who are the persons responsible to the company, for theconduct of the business of the company. Therefore, we will have to fall backupon the provisions of Companies Act, 1956 which is the law relating to andregulating companies. Section 291 of the said Act provides that subject tothe provisions of that Act, the Board of Directors of a company shall beentitled to exercise all such powers, and to do all such acts and things, as thecompany is authorised to exercise and do. A company though a legal entitycan act only through its Board of Directors. The settled position is that aManaging Director is prima facie in charge of and responsible for thecompany's business and affairs and can be prosecuted for offences by thecompany. But insofar as other directors are concerned, they can beprosecuted only if they were in charge of and responsible for the conduct ofthe company's business. A combined reading of Sections 5 and 291 ofCompanies Act, 1956 with the definitions in clauses (24), (26), (30), (31),(45) of section 2 of that Act would show that the following persons areconsidered to be the persons who are responsible to the company for theconduct of the business of the company : --(a) the managing director/s;(b) the whole-time director/s; (c) the manager; (d) the secretary; (e) any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act; (f) any person charged by the Board with the responsibility of complying with that provision (and who has given his consent in that behalf to the Board); and (g) where any company does not have any of the officers specified in clauses (a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors.It follows that other employees of the company, cannot be said to be personswho are responsible to the company, for the conduct of the business of thecompany.
15. Section 141 uses the words "was in charge of, and was responsible tothe company for the conduct of the business of the company". It is evidentthat a person who can be made vicariously liable under sub-section (1) ofSection 141 is a person who is responsible to the company for the conduct ofthe business of the company and in addition is also in charge of the businessof the company. There may be many directors and secretaries who are notin charge of the business of the company at all. The meaning of the words"person in charge of the business of the company" was considered by thisCourt in Girdhari Lal Gupta v. D.N. Mehta [1971 (3) SCC 189] followed inState of Karnataka v. Pratap Chand [1981 (2) SCC 335] and Katta Sujathavs. Fertiliser & Chemicals Travancore Ltd. [2002 (7) SCC 655]. This Courtheld that the words refer to a person who is in overall control of the day today business of the company. This Court pointed out that a person may be adirector and thus belongs to the group of persons making the policyfollowed by the company, but yet may not be in charge of the business ofthe company; that a person may be a Manager who is in charge of thebusiness but may not be in overall charge of the business; and that a personmay be an officer who may be in charge of only some part of the business.
16. Therefore, if a person does not meet the first requirement, that isbeing a person who is responsible to the company for the conduct of thebusiness of the company, neither the question of his meeting the secondrequirement (being a person in charge of the business of the company), northe question of such person being liable under sub-section (1) of section 141does not arise. To put it differently, to be vicariously liable under sub-section (1) of Section 141, a person should fulfill the 'legal requirement' ofbeing a person in law (under the statute governing companies) responsible tothe company for the conduct of the business of the company and also fulfillthe 'factual requirement' of being a person in charge of the business of thecompany.
17. Therefore, the averment in a complaint that an accused is a directorand that he is in charge of and is responsible to the company for the conductof the business of the company, duly affirmed in the sworn statement, maybe sufficient for the purpose of issuing summons to him. But if the accusedis not one of the persons who falls under the category of 'persons who areresponsible to the company for the conduct of the business of the company'(listed in para 14 above), then merely by stating that 'he was in charge of thebusiness of the company' or by stating that 'he was in charge of the day today management of the company' or by stating that he was in charge of, andwas responsible to the company for the conduct of the business of thecompany', he cannot be made vicariously liable under section 141(1) of theAct.
18. It should, however, be kept in view that even an officer who was notin charge of and was responsible to the company for the conduct of thebusiness of the company can be made liable under sub-section (2) of Section141. For making a person liable under Section 141(2), the mechanicalrepetition of the requirements under Section 141(1) will be of no assistance,but there should be necessary averments in the complaint as to how and inwhat manner the accused was guilty of consent and connivance ornegligence and therefore, responsible under sub-section (2) of section 141 ofthe Act.
19. Another aspect that requires to be noticed is that only a Director,Manager, Secretary or other officer can be made liable under sub-section (2)of section 141. But under sub-section (1) of section 141, it is theoreticallypossible to make even a person who is not a director or officer, liable, as forexample, a person falling under category (e) and (f) of section 5 ofCompanies Act, 1956. When in SMS Pharma (I), this Court observed that'conversely, a person not holding any office or designation in a companymay be liable if he satisfies the requirement of being in charge of andresponsible for conduct of the business of the company', this Courtobviously had in mind, persons described in clauses (e) and (f) of section 5of Companies Act. Be that as it may.
20. The position under section 141 of the Act can be summarized 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 sufficient if an averment is made that the accused was the Managing Director or Joint Managing Director at the relevant time. This is because the prefix `Managing' to the word `Director' makes it clear thatthey were in charge of and are responsible to the company, for the conduct of the business of the company.(ii)In the case of a director or an officer of the company who signed thecheque on behalf of the company, there is no need to make a specificaverment that he was in charge of and was responsible to the company,for the conduct of the business of the company or make any specificallegation about consent, connivance or negligence. The very fact that thedishonoured cheque was signed by him on behalf of the company, wouldgive rise to responsibility under sub-section (2) of Section 141.(iii) In the case of a Director, Secretary or Manager (as defined in Sec. 2(24) of the Companies Act) or a person referred to in clauses (e) and (f) of section 5 of Companies Act, an averment in the complaint that he was in charge of, and was responsible to the company, for the conduct of the business of the company is necessary to bring the case under section 141(1). No further averment would be necessary in the complaint, though some particulars will be desirable. They can also 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 Officers of a company can not be made liable under sub-section(1) of section 141. Other officers of a company can be made liable onlyunder sub-section (2) of Section 141, be averring in the complaint theirposition and duties in the company and their role in regard to the issueand dishonour of the cheque, disclosing consent, connivance ornegligence.
21. If a mere reproduction of the wording of section 141(1) in thecomplaint is sufficient to make a person liable to face prosecution, virtuallyevery officer/employee of a company without exception could be impleadedas accused by merely making an averment that at the time when the offencewas committed they were in charge of and were responsible to the companyfor the conduct and business of the company. This would mean that if acompany had 100 branches and the cheque issued from one branch wasdishonoured, the officers of all the 100 branches could be made accused bysimply making an allegation that they were in charge of and wereresponsible to the company for the conduct of the business of the company.That would be absurd and not intended under the Act. As the trauma,harassment and hardship of a criminal proceedings in such cases, may bemore serious than the ultimate punishment, it is not proper to subject all andsundry to be impleaded as accused in a complaint against a company, evenwhen the requirements of section 138 read and section 141 of the Act are notfulfilled.
22. A Deputy General Manger is not a person who is responsible to thecompany for the conduct of the business of the company. He does not fallunder any of the categories (a) to (g) listed in section 5 of the CompaniesAct (extracted in para 14 above). Therefore the question whether he was incharge of the business of the company or not, is irrelevant. He cannot bemade vicariously liable under Section 141(1) of the Act. If he has to bemade liable under Section 141(2), the necessary averments relating toconsent/connivance/negligence should have been made. In this case, no suchaverment is made. Hence the first respondent, who was the Deputy GeneralManger, could not be prosecuted either under sub-section (1) or under sub-section (2) of Section 141 of the Act.
23. Thus, we find no error/infirmity in the order quashing the summons asagainst the first respondent who was the Deputy General Manager of thecompany which issued the dishonoured cheque. The appeals are thereforedismissed.