Important Point
Negotiation for obtaining financial assistance on behalf of company by its directors itself is not an ingredient for purpose of constituting an offence u/s 138.

Judgment

S.B. Sinha, J.—

1.Leave granted.

2.Appellant has been proceeded against for alleged commission of an offence under Section 138 of the Negotiable Instruments Act. First respondent filed a complaint in the court of 3rd Additional Chief Metropolitan Magistrate, Hyderabad. In regard to the liability of the appellant, which is vicarious in nature, the following statement has been made in paragraph 2 of the complaint petition which reads as under :

“2.That the accused is a Company doing their business in the name and style of Ms/. Rishab Alchem India Ltd., having its Registered Office at 52, Shantinivas Apartments, Mettuguda, Secunderabad and represented by Accused No. 2 in the capacity of Managing Director of the first accused company and accused no.3 to 6 are the directors of the company. All the accused persons after negotiation with the Complaint firm had agreed to take financial assistance from the Complainant firm. After executing comprehensive loan documentation they have taken financial assistance to the tune of Rs. 10 lakhs from the Complainant firm. At the time of taking the loan amount accused persons also agreed to pay interest for the principle amount of Rs. 10 lakhs.”

3.The appellant herein contends that at the relevant point of time, he was not the Director of the Company. Inter alia, on the ground that no cognizance could be taken on the basis of the allegations made in the complaint petition as the same do not satisfy the requirement of the provisions of Section 141 of the Negotiable Instruments Act, the appellant filed a petition before the High Court of Judicature at Andhra Pradesh at Hyderabad under Section 482 of the Code of Criminal Procedure praying for quashing of the proceedings initiated against him. The High Court by reason of the impugned judgment stated as under :

“3.The learned counsel for the petitioner contended that even if the entire allegations in the complaint are taken as true, they do not make out a prima facie case against the present petitioner; that before issuance of the cheques, the Petitioner herein resigned as Director of A.1 company, hence, continuation of the proceedings against him is nothing but abuse of process of court and so he prayed to quash the same.

4.The allegation in the complaint is that the present Petitioner is one of the directors of A.1 Company. Simply because he is a Director, he can not be prosecuted for the offence under Section 138 of the Negotiable Instruments Act, 1881 unless his case falls under the provisions of Section 141 of the Act. Under Section 141 of the Act, it must be shown that every person, who at the time of the offence, is responsible to the company for conduct of its business and day-to-day affairs. It is alleged that all the accused persons after negotiations with the Complainant firm agreed to take financial assistance from the Complainant and after executing comprehensive loan documentation, they have taken financial assistance to a tune of Rs. 10.00 lakhs from the Complainant firm. Since it is alleged that all the Directors-accused participated in the negotiations with regard to the financial help to be taken by the A.1 company from the Complainant firm, it can be inferred that all the Directors were responsible for day-to-day transactions of A.1 Company. Therefore, the allegations in the complaint make out a prima facie case that all the directors are in-charge of, and responsible for, day-to-day affairs of the company.

5.The second contention is that the Petitioner was not a Director of the company at the time of issuance of the cheque. It is a question of fact that has to be established before the trial court. Exercising the powers under section 482 Cr. P.C., a question of fact cannot be decided and determined. Hence, there are no grounds to quash the impugned proceedings.”

4.It is not in dispute that for showing a vicarious liability of a Director of a Company, upon the complaint it is incumbent to plead that the accused was responsible to t