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2009(1) Bankmann 180 (Ker.)
KERALA HIGH COURT
R. Basant, J.
Sunny —Petitioner
versus
Venugopal —Respondent
Crl L.P. No. 1514 of 2008
Decided on 20.10.2008
Counsel for the Parties:
For the Petitioner:M.B. Mohandas, Advocate.
For the Respondents: Jikku George Jacob, Public Prosecutor.
IMPORTANT POINT
Mere fact that a person is director of a company will not attract culpable liability and it must be shown that a person is director of a company will not attract culpable and it must be shown that such person is not only a director of the company but is at the relevant time in charge of and responsible to the company for the conduct of its affairs.
Headnote:Negotiable Instruments Act, 1881—Sections 138 and 141— Dishonour of cheque issued by Company—Prosecution of Directors accused No. 3 to 7 in their vicarious liability—Judgment of acquittal by trial Court—Appeal—Whether mere fact that indictee was a Director of Company attract culpability for offence? No—Burden would be on complainant to establish that such indictee director was incharge of and responsible to company for conduct of its affairs.
Held: Coming to facts first, it is not disputed that no specific material has been placed before court by the complainant to show that Accused 3 to 7 were in charge of and responsible to the company for the conduct of its affairs. As noted by the learned Magistrate, there is not even an assertion in the chief affidavit that they were in charge of and responsible to the company for the conduct of its affairs. In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (2005 (4) KLT 2009 (SC)) the three judges Bench of the Supreme Court has very clearly held-going by the eloquent language of S. 141 of the N.I. Act, that the mere fact that a person is director of a company will not attract culpable liability and it must be shown that such person is not only a director of the company but is at the relevant time in charge of and responsible to the company for the conduct of its affairs. (Para 5)
In the total absence of any evidence specifically to show that accused 3 to 7 were in charge of and responsible to the company for the conduct of its affairs or that the offence was committed with their consent or connivance or is attributable to their negligence the mere fact that averments to that effect have been raised in the complaint and accused 3 to 7 have not shown in evidence that they are not in charge of and responsible to the company for the conduct of its affairs will not absolve the petitioner/complainant of his obligation to prove the crucial requirement. The challenge raised against the verdict of not guilty and acquittal is thus found to be without any merit.
I am unable to understand the observations in Rangachari (supra) which I have specifically extracted above to mean that in every prosecution under S. 138 read with 141 of the Negotiable Instruments Act it is sufficient to establish merely that the indictee was a Director of the Company and the burden would then shift to such indictee to prove that he was not. Such a conclusion appears to be impermissible going by the language of S.141 of the Act and the unequivocal declaration of the law in S.M.S. Pharmaceuticals (supra) which is unambiguously accepted in Rangachari (supra) also. In Rangachari (Supra) the question that arose was only whether the complaint deserves to be quashed at the threshold in the light of the large Bench decision in S.M.S. Pharmaceuticals (supra). Their Lordships held that the complaint was not liable to be quashed. The averments in the complaint are not extracted in Rangachari (supra). I must assume, in the light of the observations extracted above, that on facts the play of S. 141 (2) must have arisen for decision in that case and it is hence that their Lordships observed that on proof of the ingredients the burden would shift to such indictee director. I am unable to accept the contentions of the learned counsel for the petitioner that Rangachari (supra) lays down a proposition-contrary to S.M.S. Pharmaceuticals (supra), that at the stage of evidence (unlike at the stage of cognizance at the threshold) it will have to be assumed and presumed that every director of a company is in charge of and responsible to it for the conduct of its affairs and the burden rests on the shoulders of such directors to prove that he is not. Rangachari (supra) does not and cannot lay down such a proposition at all. It is impermissible to assume that such a presumption which is held to be unavailable at the threshold while taking cognizance would emerge later at the stage of adjudication of guilt. Rangachari (supra) does not say so nor is it permissible to assume that it says so in the light of the unequivocal pronouncement of the larger Bench in S.M.S. Pharmaceuticals (supra). (Paras 9 & 10)
Result: Leave to appeal dismissed.
R. Basant, J.—Does the mere fact that an indictee is Director of a Company attract culpability under Section 138 read with 141 of the Negotiable Instruments Act (for Short the Act)? On whom does the burden lie to prove that such indictee director was (or was not) in charge of and responsible to the company for the conduct of its affairs? Does Rangachari v. B.S.N.L (2007 (2) KLT 1030 (SC)) lay down a proposition that at the stage of evidence/trial, it must be presumed that every director is in charge of and responsible to the company for the conduct of its affairs? These interesting questions are raised in this case.
2. This application for leave under S.378(4) Cr.P.C. is to prefer and appeal against a judgment of acquittal in a prosecution under S. 138 of the Negotiable Instruments Act.
3. The petitioner herein filed a complaint alleging commission of offences under S. 138 read with 141 of the Negotiable instruments Act. Altogether there were nine accused persons. First accused is a company. Second accused is the Managing Director of the Company. Accused 3 to 8 are the directors of the company. Accused 9 is the Manager of the Company. Accused 2 and 9 have allegedly singed the cheque in question on behalf of the first accused. Accused No.8 had expired and the allegations against him had abated. Accused 3 to 7 alone were available for trial. The only allegation against them is that they were the directors of the company and that they were in charge of and responsible to the company for the conduct of its affairs. Accused 3 to 7 denied the offences alleged against them. Accused 1, 2 and 9 were not available for trial. The complainant examined PW1 and proved Exts.P1 to P11. The accused examined DWs 1 to 7 and proved Exts. D1 to D11. The learned Magistrate, on an anxious consideration of all the relevant inputs, entered the verdict of not guilty in favour of accused 3 to 7 and acquitted them. The relevant discussion appears in para 8 under point No.3. The question whether accused 3 to 7 were in charge of and responsible to the first accused for the conduct of business was considered. I extract below para 8 in which the crucial findings appear. The discussion is of course continued in paras 9 and 10 also and it is finally answered that Accused 3 to 7 were not in charge of and responsible to the company for the conduct of its affairs at the relevant time. Para 8 reads as follows:
“8. Point No.3: The only averment in the affidavit is that A3 to A8 were directors, and A2 was the Managing Director and A9 was the Manager of the 1st accused during alleged period. According to PW1, A2 and A9 are the signatories to Ext.P1. To fix vicarious liability on A3 to A7 there should be clear evidence either oral or documentary, that A3 to A7 were incharge of and responsible for the conduct of the business of the company at the relevant time. Mere averment in the complaint is not enough to satisfy this requirement of S. 141. There should be evidence also to that effect. Neither any oral evidence nor any documentary evidence was adduced by PW1. Merely being a Director of a company one be held liable under S.141.”
4. The learned-counsel for the petitioner prays that leave may be granted under S.378(4) Cr.P.C. to appeal against the impugned judgment. The learned counsel contends that there were specific averments in the complaint that Accused 3 to 7 were in charge of and responsible to the company for the conduct of its affairs. Such specific allegations having been raised (notwithstanding the fact that no specific evidence was tendered to substantiate the contention that they were not only directors of the company; but were also in such a capacity in charge of and responsible to the company for the conduct of its affairs) the acquittal is bad for the reason that Accused 3 to 7 have not shown that they were not in charge of and responsible to the company for the conduct of its affairs, contends the learned counsel for the petitioner. The learned c
