# 10 S.C.R. 1117 GUNMALA SALES PRIVATE LTD v. ANU MEHTA & ORS

- **Citation:** [2014] 10 S.C.R. 1117
- **Court:** Supreme Court of India
- **Decided:** 2014-10-17
- **Case number:** Criminal Appeal No. 2228 of 2014
- **Bench:** Ranjana Prakash Desai, N.V. Ramana
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/10-s-c-r-1117-gunmala-sales-private-ltd-v-anu-mehta-ors-29488
- **Pages:** 36

## Headnote

Negotiable Instruments Act, 1881:
A
B
s.138 rlw s.141 -
Complaints against Directors on c
dishonour of cheques - Averments made in complaints that
Directors were in-charge and responsible for day-to-day
business of accused company - Complaints quashed by
High Court holding that mere bald assertion was not sufficient
to maintain the complaints - In petitions filed by Directors, no
0
clear case was made out that at the material time Directors
were not in-charge of and were not responsible for the conduct
of business of the company by referring to or producing any
incontrovertible or unimpeachable evidence which is beyond
suspicion or doubt - Order of High Court quashing complaints
E
against Directors set aside, except in respect of an old lady
of 70 years of age, as making her stand the trial would be an
abuse of process of court - Code of Criminal Procedure, 1973
- s.482.
Code of Criminal Procedure, 1973:
F
s. 482 - Exercise of power by High Court to quash
criminal proceedings u/s 138 rlw s.141 of Negotiable
Instrument Act against Directors of accused company -
Principles culled out.
G
Disposing of the appeals, the Court
HELD: 1.1. So far as Directors who are not
signatories to the cheques or who are not Managing
1117
H
1118
SUPREME COURT REPORTS
[2014] 10 S.C.R.
A Directors or Joint Managing Directors are concerned, it
is necessary to aver in the complaint filed u/s 138 read
with s.141 of the NI Act that at the relevant time when the
offence was committed, the Directors were in charge of
and were responsible for the conduct of the business of
B the company. There is no deemed liability of such
Directors. This averment assumes importance because
it is the basic and essential averment which persuades
the Magistrate to issue process against the Director. Thus,
if this basic averment is missing the Magistrate is legally
c justified in not issuing process. [para 26-27] [1114-B-E]
Saroj Kumar Poddar v. State (NCT of Delhi) and anr.
2007 (1) SCR 907 = 2007 (3) SCC 693 - N. Rangachari v.
Bharat Sanchar Nigam Ltd. 2007 (5) SCR 329 = 2007
(5) SCC 108; Paresh P. Rajda v. State of Maharashtra and
D anr. 2008 (8) SCR 1191=2008 (7) SCC 442; Malwa Cotton
and Spinning Mills Ltd. v. Virsa Singh Sidhu and ors. 2008
(12) SCR 68 = 2008 (17) SCC 147; K.K. Ahuja v. V.K. Arora
and anr. 2009 (10) sec 48; Manna/al Chamaria v. State of
West Bengal (2014) 4 SCALE 55 A.K. National Small
E Industries Corporation Limited v. Harmeet Singh Painta/ and
anr. 201 o (2) SCR 805 = 201 o (3) sec 330; SMS
Pharmaceuticals Ltd. (2) v. Neeta Bhalla 2007 (2) SCR 862
= 2007 (4) SCC 70 ("SMS Pharma-(2r Rallis India Limited
v. Poduru Vidya Bhushan and ors. 2011 (5) SCR 289 = 2011
F (13) SCC 88 A.K. Singhania v. Gujarat State Fertilizer
Company Ltd. 2013(12) SCALE 673 - relied on.
Palmer's Company Law 20th Edition, Guide to the
Companies Act by A. Ramaiya 16th Edition and Principles
G of Modern Company Law by Gower and Davies 17th Edition
- referred to.
H
1.2. Inherent power u/s 482 of the Code is to be
invoked to prevent abuse of the process of any court or
otherwise to secure ends of justice. If the requisite
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1119
averment is there, High Court need not dismiss the
A
petition as a rule observing that the trial must go on and
the High Court is not precluded from looking into other
circumstances if any. [para 27] [1114-F-G]
SMS Pharmaceuticals Limited v. Neeta Bhalla and anr.
2005 (3) Suppl. SCR 371 = 2005 (8) SCC 89 - relied on.
B
1.3. Just as the complainant is entitled to presume in
view of provisions of the Companies Act that the Director
was concerned with the issuance of the cheque, the
Director is entitled to contend that he was not concerned
C
with the issuance of cheque for a variety of reasons. It is
for the High Court to consider these submissions.
Quashing of a complaint is a serious matter. Complaint
cannot be quashed for the asking. For quashing of a
complaint it must be shown that no offence is made out D
at all agains

## Text

_Characters 0–39,737 of 67,358. This is a partial read: ask again with offset=39737 for what follows._

[2014) 10 S.C.R. 1117
GUNMALA SALES PRIVATE LTD.
v.
ANU MEHTA & ORS.
(Criminal Appeal No. 2228 of 2014 ere.)
OCTOBER 17, 2014.
[RANJANA PRAKASH DESAI AND N.V. RAMANA, JJ.)
Negotiable Instruments Act, 1881:
A
B
s.138 rlw s.141 -
Complaints against Directors on c
dishonour of cheques - Averments made in complaints that
Directors were in-charge and responsible for day-to-day
business of accused company - Complaints quashed by
High Court holding that mere bald assertion was not sufficient
to maintain the complaints - In petitions filed by Directors, no
0
clear case was made out that at the material time Directors
were not in-charge of and were not responsible for the conduct
of business of the company by referring to or producing any
incontrovertible or unimpeachable evidence which is beyond
suspicion or doubt - Order of High Court quashing complaints
E
against Directors set aside, except in respect of an old lady
of 70 years of age, as making her stand the trial would be an
abuse of process of court - Code of Criminal Procedure, 1973
- s.482.
Code of Criminal Procedure, 1973:
F
s. 482 - Exercise of power by High Court to quash
criminal proceedings u/s 138 rlw s.141 of Negotiable
Instrument Act against Directors of accused company -
Principles culled out.
G
Disposing of the appeals, the Court
HELD: 1.1. So far as Directors who are not
signatories to the cheques or who are not Managing
1117
H
1118
SUPREME COURT REPORTS
[2014] 10 S.C.R.
A Directors or Joint Managing Directors are concerned, it
is necessary to aver in the complaint filed u/s 138 read
with s.141 of the NI Act that at the relevant time when the
offence was committed, the Directors were in charge of
and were responsible for the conduct of the business of
B the company. There is no deemed liability of such
Directors. This averment assumes importance because
it is the basic and essential averment which persuades
the Magistrate to issue process against the Director. Thus,
if this basic averment is missing the Magistrate is legally
c justified in not issuing process. [para 26-27] [1114-B-E]
Saroj Kumar Poddar v. State (NCT of Delhi) and anr.
2007 (1) SCR 907 = 2007 (3) SCC 693 - N. Rangachari v.
Bharat Sanchar Nigam Ltd. 2007 (5) SCR 329 = 2007
(5) SCC 108; Paresh P. Rajda v. State of Maharashtra and
D anr. 2008 (8) SCR 1191=2008 (7) SCC 442; Malwa Cotton
and Spinning Mills Ltd. v. Virsa Singh Sidhu and ors. 2008
(12) SCR 68 = 2008 (17) SCC 147; K.K. Ahuja v. V.K. Arora
and anr. 2009 (10) sec 48; Manna/al Chamaria v. State of
West Bengal (2014) 4 SCALE 55 A.K. National Small
E Industries Corporation Limited v. Harmeet Singh Painta/ and
anr. 201 o (2) SCR 805 = 201 o (3) sec 330; SMS
Pharmaceuticals Ltd. (2) v. Neeta Bhalla 2007 (2) SCR 862
= 2007 (4) SCC 70 ("SMS Pharma-(2r Rallis India Limited
v. Poduru Vidya Bhushan and ors. 2011 (5) SCR 289 = 2011
F (13) SCC 88 A.K. Singhania v. Gujarat State Fertilizer
Company Ltd. 2013(12) SCALE 673 - relied on.
Palmer's Company Law 20th Edition, Guide to the
Companies Act by A. Ramaiya 16th Edition and Principles
G of Modern Company Law by Gower and Davies 17th Edition
- referred to.
H
1.2. Inherent power u/s 482 of the Code is to be
invoked to prevent abuse of the process of any court or
otherwise to secure ends of justice. If the requisite
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1119
averment is there, High Court need not dismiss the
A
petition as a rule observing that the trial must go on and
the High Court is not precluded from looking into other
circumstances if any. [para 27] [1114-F-G]
SMS Pharmaceuticals Limited v. Neeta Bhalla and anr.
2005 (3) Suppl. SCR 371 = 2005 (8) SCC 89 - relied on.
B
1.3. Just as the complainant is entitled to presume in
view of provisions of the Companies Act that the Director
was concerned with the issuance of the cheque, the
Director is entitled to contend that he was not concerned
C
with the issuance of cheque for a variety of reasons. It is
for the High Court to consider these submissions.
Quashing of a complaint is a serious matter. Complaint
cannot be quashed for the asking. For quashing of a
complaint it must be shown that no offence is made out D
at all against the Director. [para 28 & 30] [1145-G-H; 1146A; 1147-A-B]
Anita Malhotra v. Apparel Export Promotion Council and
anr. ; 2011 (13) SCR 76 = 2012 (1) SCC 520, Harshendra
E
Kumar D v. Reba ti/ a ta Kotey & Ors. 2011 (2) SCR 670 = 2011
(3) sec 351 - relied on.
1.4. There could be a case where the High Court may
feel that filing of the complaint against all Directors is
abuse of the process of ~ourt. The High Court would be
F
justified in such cases in,..quashing the complaint after
looking into the material furnished by the accused. At that
stage there cannot be a mini trial or a roving inquiry. The
material on the face of it must be convincing or
uncontrovered or there must be some totally acceptable
G
circumstances requiring no trial to establish the
innocence of the Directors. [para 32] [1149-D-E]
1.5. In the instant case, in the application filed by the
respondents, no clear case was made out that at the
H
1120
SUPREME COURT REPORTS
[2014] 10 S.C.R.
A material time, the Directors were not in charge of and were
not responsible for the conduct of the business of the
company
by
referring
to
or
producing
any
uncontrovertible or unimpeachable evidence which is
beyond suspicion or doubt or any totally acceptable
B circumstances. In the circumstances, the matter deserves
to be remitted to the High Court for fresh hearing.
However, the order passed by the High Court quashing
the process in CC No. 224035 of 2011 as against the
accused, an old lady over 70 years of age, is affirmed as
c in the peculiar facts and circumstances of the case,
making her stand the trial would be an abuse of process
of the court. The impugned order to the extent it quashes
the process issued against other Directors is set aside
and the matter is remitted to the High Court for
0 consideration afresh. [para 34] (1151-G-H; 1152-D-E]
Shree Raj Travels and Tours Ltd.· v. Destination of the
World (subcontinent) Pvt. Ltd. 66 Comp Cas 26 (Delhi); G.N.
Verma v. State of Jharkhand and anr. (2014) 4 sec 282; N.K.
Wahi v. Shekhar Singh and ors. 2007 (3) SCR 883 = 2007
E (9) SCC481; MRF Limited etc. v. Manohar Parrikar and ors.
etc. 2010 (5) SCR 1081 = 2010 (11) SCC 37 4; Sabitha
Ramamurthy v. R.B.S. Channabaasavaradhya 2006
(6) Suppl. SCR 126 = 2006 (10) sec 581 - cited.
F
Case Law Reference:
2009 (1 O) sec 48
relied on
para 8
2005 (3) Suppl. SCR 371
relied on
para 8
(2014) 4 SCALE 55
relied on
para 8
G
2013(12) SCALE 673
relied on
para 8
-
2011 (5) SCR 289
relied on
para 8
2006 (6) Suppl. SCR 126
cited
para
H
2008 (8) SCR 1191
relied on
para 8
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1121
2008 (12) SCR 68
relied on
para 8
A
2007 (5) SCR 329
relied on
para 8
66 Comp Cas 26 (Delhi)
cited
para 8
(2014) 4 sec 282
cited
para 9
B
2010 (2) SCR 805
relied on
para 9
2011 (13) SCR 76
relied on
para 9
2011 (2) SCR 670
relied on
para 9
c
2007 (3) SCR 883
cited
para 9
2010 (5) SCR 1081
cited
para 9
2007 (1) SCR 907
relied on
para 14
2007 (2) SCR 862
relied on
para 15
D
2006 (6) Suppl. SCR 126
cited
para 16
2008 (8) SCR 1191
cited
para 18
CRIMINAL AP PELLA TE JURISDICTION : Criminal Appeal
E
No. 2228 of 2014.
From the Judgment & Order dated 25.6.2012 of the High
Court at Calcutta in C.R.R No. 4099 of 2011.
WITH
F
Crl A. No. 2229-2241, 2242-2249, 2550-2260 & 2261-2265
of 2014.
Gurukrishna Kumar, Devashish Bharuka, Deepayan
G
Mandal, Vaibhav Niti for the Appellant.
Abhishek Manu Singhvi, T. Mahipal, Rishabh Sancheti,
Yatin Sachdeva, Padma Priya for the Respondents.
The Judgment of the Court was delivered by
H
1122
SUPREME COURT REPORTS
[2014) 10 S.C.R.
A
(SMT.) RANJANA PRAKASH DESAI, J. 1. Leave
granted.
2. In these appeals, we are concerned with the question
as to whether the High Court was justified in quashing the
8 proceedings initiated by the Magistrate on the ground that there
was merely a bald assertion in the complaint filed under
Section 138 read with Section 141 of the Negotiable
Instruments Act, 1881 ("the NI Act") that the Directors were
at the time when the offence was committed in charge of and
C responsible for the conduct and day-to-day business of the
accused-company which bald assertion was not sufficient to
maintain the said complaint.
3. These appeals arise out of several complaints filed
under Section 138 read with Section 141 of the NI Act. The
D complaints were filed by Gunmala Sales Private Limited or
Rooprekha Sales Private Limited or by both. In the complaints,
the respondents herein and others were arrayed as accused.
After the process was issued, the respondents filed various
applications under Section 482 of the Code of Criminal
E Procedure, 1973 ("the code") in the High Court. The High
Court disposed of one application being C.R.R. No.4099 of
2011 by a reasoned order. As the same issue was involved in
all the applications, the other applications were disposed of in
terms of judgment in C.R.R. No.4099 of 2011. Special Leave
F Petition (Crl.) No.1724 of 2013 was filed challenging the said
judgment in C.R.R. No.4099 of 2011. We may, therefore, for
the disposal of these appeals, refer to the facts in civil appeal
arising out of Special Leave Petition No.1724 of 2013, treating
the same as the lead case.
G
4. It is the case of the appellant that in or about February,
H
2008, one Navkar Buildestates Private Limited ("the said
Company") through its Directors - respondents 1 to 3
approached the appellant for certain financial assistance to
meet the working capital requirement of the said Company.
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1123
[RANJANA PRAKASH DESAI, J.]
Accordingly, at the request of respondents 1 to 3, the appellant
A
lent and advanced certain amount of money to the said
Company. The said amount carried interest at the rate of 6%
per annum. Respondents 1 to 3 along with the Managing
Director of the said Company agreed and undertook to pay the
said amount on or before 31/7/2011. It was further agreed by
8
the respondents that on their failure to pay the amount on or
before 31/7/2011, the appellant would be entitled to claim
interest at the rate of 18% per annum. The respondents failed
to repay the entire amount on or before 31/7/2011.
5. On 31/7/2011, in acknowledgment of their liability and
C
towards repayment of the amount due, the said Company
issued cheques in favour of the appellant. On 2/8/2011, when
the appellant presented the said cheques to its banker -
Canara Bank, the same were returned unpaid with the remark
"Insufficient Funds". On 20/8/2011, the appellant sent a
D
statutory demand notice to respondents 1 to 4 under Section
138 of the NI Act. The said notice was received by respondents
1 to 4 on 27/8/2011. As respondents 1 to 4 failed to repay the
amount as demanded in the said notice, on 26/9/2011, the
appellant filed a complaint in the Court of the Chief Metropolitan
E
Magistrate at Calcutta. Learned Magistrate accepted the said
complaint and passed the summoning order.
6. Respondents 1 to 4 filed an application before the High
Court of Calcutta under Section 482 of the Code for quashing
F
the proceedings pending before the learned Magistrate. The
High Court framed two questions as under:
"(i)
Whether the Directors can be prosecuted on the
bald assertion made in the complaint, that "the
Directors thereof and were at the time when the
G
offence committed in charge of and were
responsible for the conduct and day to day
business of the said accused No. 1 company".
(ii)
Whether the Director who has resigned can be H
A
1124
SUPREME COURT REPORTS
[2014] 10 S.C.R.
prosecuted after his resignation has been
accepted by the Board of the Directors of the
Company".
So far as the first question is concerned, the High Court.
8
after referring to certain judgments of this Court, held that except
the averment that the Directors were in-charge of and
responsible for the conduct and day to day business of the
Company, nothing has been stated in the complaint as to what
part was played by them and how they were responsible for the
finances of the company, issuance of cheques and whether they
~
C had control over the funds of the company. The High Court
observed that the complaint lacked material averments. The
High Court quashed the proceedings on this ground. So far as
the second question is concerned, the High Court held that it
is not necessary to answer it because the first question is
D answered in favour of respondents 1 to 4. The High Court
quashed the complaint. Being aggrieved by the said order, the
appellant has approached this Court by way of this appeal.
7. We have heard Mr. Gurukrishna Kumar, learned senior
E counsel appearing for the appellant as well as Dr. Abhishek
Manu Singhvi, learned senior counsel appearing for the
respondents. We have perused the written submissions filed
by the parties.
F
8. Gist of the written submissions of the appellants.
(a)
It is settled law that a specific averment in the
complaint that he/she is in charge of and is
responsible to the company for the conduct of the
business of the company is sufficient to maintain the
G
complaint under Section 138 of the NI Act. It is not
incumbent upon the complainant to elaborate in the
complaint the role played by each of the Directors
in the transaction forming the subject matter of the
complaint. A Director is, in law, in charge of and is
H
responsible to the company for the business of the
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1125
[RANJANA PRAKASH DESAI, J.]
company in view of the various provisions of the
Companies Act and, therefore, his position is
different from that of other officers when arrayed as
a co-accused in a complaint under Section 138 of
the NI Act. The vicarious liability of Director/
secretary/manager/other officers of a company
under Section 141 of the NI Act has to be
understood in the light of the statutory language
employed in Section 141(1) and Section 141(2) of
A
B
the NI Act. At any rate, the individual role of a
Director is exclusively in the realm of internal c
management of a company and at the initial stage
of a complaint, it would be unreasonable to expect
a complainant to elaborate the specific role played
by a Director in the transactions forming the subject
matter of the complaint. In the present case, the
0
appellant has pleaded that "the accused 2, 3, 4 and
5 are the directors of accused 1 and were at the
time when the offence committed in charge of and
were responsible for the conduct and day to day
business of the said accused-company"." The High
Court on a complete misconstruction of legal
position enunciated by this Court in various
judgments, quashed the complaint on the ground
E
F
that "nothing has been stated as to what part was
played by the Directors petitioners and how they
were responsible regarding the finances of the
company, issuance of cheques and control over the
funds of the company." In this connection, it is
necessary to turn to K.K. Ahuja v. V.K. Arora and
anr1• where this Court has referred to relevant
provisions of the Companies Act and observed that
G
in case of a Director, Secretary or Manager [as
defined in Section 2(24) of the Companies Act], or
a person referred to in Clauses (e) and (f) of Section
1.
(2009) 10 sec 48.
H
A
B
c
D
E
1126
SUPREME COURT REPORTS
[2014] 10 S.C.R.
5 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 the
business of the company is necessary to bring the
case under Section 141(1) of the NI Act and no
further averment would be necessary in the
complaint though some particulars would be
desirable. In SMS Pharmaceuticals Limited v.
Neeta Bhalla and anf. ("SMS Pharma-(1 )"), this
Court has observed that the requirement of Section
141 is that the person sought to be made liable
should be in charge of and responsible for the
conduct of the business of the company at the
relevant time. This has to be averred as a fact as
there is no deemed liability of the Director in such
cases. Reference may also be made to Manna/al
Chamaria v. State of West Benga/3, A.K.
Singhania v. Gujarat State Fertilizer Company
Ltd. 4 , Rallis India Limited v. Poduru Vidya
Bhushan and ors. 5, Paresh P. Rajda v. State of
Maharashtra and anr. 6, Malwa Cotton and
Spinning Mills Ltd. v. Virsa Singh Sidhu and ors.7
and N. Rangachari v. Bharat Sanchar Nigam Ltd.8
(b)
So far as the decisions cited by the respondents
are concerned, all these decisions purported to
F
follow the law laid down in SMS Pharma-(1), which
does not lay down any general proposition of law
2.
(2005) 8 sec 89
G
3.
(2014) 4 SCALE 55
4.
2013(12) SCALE 673
5.
c2011) 13 sec 88
6.
(2008) 1 sec 442
7.
c2008) 11 sec 141
H 8.
c2001) 5 sec 108
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1127 ·
[RANJANA PRAKASH DESAI, J.]
(c)
(d)
that the specific role of a Director sought to be
A
arrayed as an accused has to be elaborated in the
complaint itself.
The doctrine of 'Indoor Management' would be a
relevant factor to be considered while assessing the
averments to be made to satisfy the requirements
of Section 141 of the NI Act. A complainant to
whom a cheque is issued by a company may not
B
be aware of the functions performed by a particular
Director in the company. The responsibility of each
of the Directors is exclusively the internal ' C
management of the company itself. In this
connection, it would be useful to refer to Rangachari
and Delhi High Court's judgment in Shree Raj
Travels and Tours Ltd. v. Destination of the World
(subcontinent) Pvt. Ltd. 9•
D
Finally, it must be noted that vicarious liability is
contemplated in the NI Act to ensure greater
transparency in commercial transactions. This
object has to be kept in mind while considering
individual cases and hardship arising out of a
particular case cannot be the basis for Directors to
try to wriggle out of prosecution. Section 482 of the
Code can be invoked where it is clear from
documents on record, such as Form-32, that the
Director is wrongly arraigned and not in any other
case. The High Court clearly fell into an error in
quashing the proceedings and, hence, impugned
order deserves to be set aside.
E
F
Mr. Gurukrishna Kumar, learned senior counsel for the
G
appellant reiterated the above submissions.
9. Gist of the written submissions of the respondents:
9.
66 Comp Cas 26 (Delhi).
H
1128
SUPREME COURT REPORTS
[2014] 10 S.C.R.
A
(a)
The main accused Shantilal Mehta is facing trial in
all matters. The present appeal is limited to other
family members of Shantilal Mehta i.e. his father
Kanhaiyalal Mehta and his mother Shobha Mehta,
who are over 70 years of age, his wife who is 52
B
years of age and his son who is 24 years of age.
They are dragged in to harass them.
(b)
Mere bald statement that the Director is in charge
of responsible to the company is not sufficient to
maintain prosecution [G.N. Verma v. State of
c
Jharkhand and anr. 10].
(c)
Reproduction of statutory language of Section 141
is not sufficient. The necessary requirements of the
complaint which need to be indicated in the
D
complaint are "how", "in what manner", "the role",
"description" and "specific allegation" as to the part
played by a person before he could be made an
accused. In this connection, reliance is placed on
National Smaf/ Industries Corporation Limited v.
E
Harmeet Singh Paintal and anr. 11 , Anita Malhotra
v. Apparel Export Promotion Council and anr. 12 ,
N.K. Wahi v. Shekhar Singh and ors.13. These
conditions are intended to ensure that a person who
is sought to be made vicariously liable for an
F
offence of which the principle accused is the
Company, had a role to play in relation to the
incriminating act and further that such a person
should know what is attributed to him to make him
liable.
G
(d)
The appellants' plea of Indoor Management is totally
10. (2014) 4 sec 282.
11. c201 O) 3 sec 330.
12. (2012) 1 sec s20.
H 13. c2001) 9 sec 481.
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1129
[RANJANA PRAKASH DESAI, J.]
misconceived. This doctrine is limited to protecting
A
outsiders regarding internal infirmities of
Memorandum of Articles. Its real application in a
cheques bouncing case would have been if a plea
was taken that the company never had a power to
incur debt and hence there is no legal liability. This
B
doctrine cannot be invoked to give a carte blanche
to an outsider to list all Directors for prosecution
without even giving their "role" or "part played". In
this connection, reliance is placed on MRF Limited
etc. v. Manohar Parrikar and ors. etc. 14. The c
judgment of Delhi High Court in Shree Raj Travels
& Tours is in teeth of the law laid down by this Court
and, hence, does not appear to be correct.
Moreover, in commercial world, whether a person
deals with a company at the company's office or
D
enters into a commercial transaction by e-mail, in
both cases, there is an awareness of the persons
responsible for the act of giving a cheques, without
the intention of honouring it. There is, therefore,
complete non-applicability of the doctrine of Indoor
E
Management in such cases.
(e)
It would be against the interest of justice to
prosecute all Directors. Such approach would delay
trials and would be against the very scheme of NI
Act. If all Directors are unnecessarily prosecuted,
F
it would hinder good persons to come forward and
become Directors. It would have adverse effect on
corporate well being.
Dr. A.M. Singhvi, learned senior counsel for the
G
respondents reiterated the above submissions.
10. It is necessary to first reproduce Section 141 of the NI
14. c2010) 11 sec 374.
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(2014] 10 S.C.R.
A Act because the issue involved in this matter revolves around
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it. Section 141-of the NI Act reads thus:
"141. Offences by companies. -
(1) If the person
committing an offence under section 138 is a company,
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, as well
as the company, shall be deemed to be guilty "of the
offence and shall be liable to be proceeded against and
punished accordingly:
Provided that nothing contained in this sub-section
shall render any person liable to punishment if he proves
that the offence was committed without his knowledge, or
that he had exercised all due diligence to prevent the
commission of such offence:
[Provided further that where a person is nominated
as a Director of a company by virtue of his holding any
office or employment in the Central Government or State
Government or a financial corporation owned or
controlled by the Central Government or the State
Government, as the case may be, he shall not be liable
for prosecution under this Chapter.]
(2) Notwithstanding anything contained in subsection (1), where any offence under this Act has been
committed by a company and it is proved that the offence
has been committed with the consent or connivance of,
or is attributable to, any neglect on the part of, any
director, manager, secretary or other officer of the
company, such director, manager, secretary or other
officer shall also be deemed to be guilty of that offence
and shall be liable to be proceeded against and
punished accordingly.
Explanation.- For the purposes of this section,-
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1131
[RANJANA PRAKASH DESAI, J.]
(a)
"company" means any body corporate and A
includes a firm or other association of individuals;
and
(b)
"director", in relation to a firm, means a partner in
the firm.]"
11. It is also necessary to quote the relevant paragraphs
of the complaint which relate to the Directors of the accused
company. They read as under:
B
"2. The Accused No. 1 is a company within the meaning c
of the Companies Act, 1956, having its registered office
at 103-104, Shubh Apartment, 99-L, Bhopalpura,
Udaipur, P.S. Bhupalpura, Rajasthan - 313001 and the
Accused Nos.2, 3, 4 and 5 are the Directors thereof and
were at the time when the offence committed in charge
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of and were responsible for the conduct and day to day
business of the said accused No. 1 company.
3. In discharge of the accused persons' existing legal
debt and/or liability, the accused No. 1 company had,
issued and made over to the complainant an account
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payee cheque signed by the accused No.2 being
No. 008049 dated 31st July, 2011 for Rs.40, 00,'0001drawn on The Rajsamand Urban Co-Op. Bank Limited,
Udaipur Branch, Rajasthan - 313001."
It must be noted here that the complaint is quashed by the
High Court against all other accused except accused 2 who has
signed the cheques.
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12. Several judgments have been cited before us. It is
necessary to refer to them in brief to get an idea as to how
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different Benches of this Court have dealt with this issue. We
must begin with SMS Pharma-(1), which is a decision of threeJudge Bench of this Court. All subsequent decisions are of twoJudge Benches. The three-Judge Bench was dealing with the
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(2014] 10 S.C.R.
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reference made by a two-Judge Bench for determination of the
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following questions:
"(a) Whether for purposes of Section 141 of the
Negotiable Instruments Act, 1881, it is sufficient if the
substance of the a/legation read as a whole fulfill the
requirements of the said section and it is not necessary
to specifically state in the complaint that the person
accused was in charge of, or responsible for, the conduct
of the business of the company.
(b) Whether a director of a company would be deemed
to be in charge of, and responsible to, the company for
conduct of the business of the company and, therefore,
deemed to be guilty of the offence unless he proves to
the contrary.
(c) Even if it is held that specific averments are
necessary, whether in the absence of such averments the
signatory of the cheque and or the managing directors
or joint managing director who admittedly would be in
charge of the company and responsible to the company
for conduct of its business could be proceeded against. n
13. After considering Sections 138 and 141 of the NI Act,
Sections 203 & 204 of the Code and the relevant provisions
of the Companies Act, this Court answered the questions
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posed in the reference as under:
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"(a) It is necessary to specifically aver in a
complaint under Section 141 that at the time the offence
was committed, the person accused was in charge of, and
responsible for the conduct of business of the company.
This averment is an essential requirement of Section 141
and has to be made in a complaint. Without this averment
being made in a complaint, the requirements of Section
141 cannot be said to be satisfied.
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1133
[RANJANA PRAKASH DESAI, J.]
(b) The answer to the question posed in sub-para
A
(b) has to be in the negative. Merely being a director of
a company is not sufficient to make the person liable
under Section 141 of the Act. A director in a company
cannot be deemed to be in charge of and responsible to
the company for the conduct of its business. The
B
requirement of Section 141 is that the person sought to
be made liable should be in charge of and responsible
for the conduct of the business of the company at the
relevant time. This has to be averred as a fact as there
is no deemed liability of a director in such cases.
c
(c) The answer to Question (c) has to be in the
affirmative. The question notes that the managing
director or joint managing director would be admittedly
in charge of the company and responsible to the
company for the conduct of its business. When that is so,
D
holders of such positions in a company become liable
under Section 141 of the Act. By virtue of the office they
hold as managing director or joint managing director,
these persons are in charge of and responsible for the
conduct of business of the company. Therefore, they get
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covered under Section 141. So far as the signatory of a
cheque which is dishonoured is concerned, he is clearly
responsible for the incriminating act and will be covered
under sub-section (2) of Section 141."
F
14. In Saroj Kumar Poddar v. State (NCT of Delhi) and
anr. 15, the appellant therein was the Director of a public limited
company which had issued three cheques in favour of
respondent 2, who was manufacturer and supplier of chemical
compounds. The cheques having been dishonoured, the
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complaint came to be filed. Application for quashing of the
complaint was filed by the appellant in the High Court. The High
Court dismissed the said application. While setting aside the
1 s. (2007) a sec 693.
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[2014] 10 S.C.R.
A High Court's order and after referring to SMS Pharrna-(1), a
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two-Judge Bench of this Court observed as under:
"14 . ......... The appellant did not issue any cheque. He,
as noticed herein before, had resigned from· the
directorship of the Company. It may be true that as to
exactly on what date the said resignation was accepted
by the Company is not known, but, even otherwise, there
is no averment in the complaint petitions as to how and
in what manner the appel/ant was responsible for the
conduct of the business of the Company or otherwise
responsible to it in regard to its functioning. He had not
issued any cheque. How he is responsible for dishonour
of the cheque has not been stated. The allegations made
in para 3, thus, in our opinion do not satisfy the
requirements of Section 141 of the Act."
This Court further observed that with a view to making a
Director of a company vicariously liable for the acts of the
company, it was obligatory on the part of the complainant to
make specific allegations as are required in law.
15. The reference having been answered in SMS Pharrna-
(1) individual cases were directed to be listed before an
appropriate Bench for disposal according to law. Pursuant to
this order the appeal was placed before a two-Judge Bench
of this Court. The two-Judge Bench of this Court in SMS
F Pharmaceuticals Ltd. (2) v. Neeta Bhafla16 ("SMS Pharma-
(2)') noted that the High Court had quashed the complaint
against respondent 1 holding that the allegations contained in
the complaint as against respondent are vague and indefinite.
The two-Judge Bench observed that on a plain reading of the
G averments made in the complaint it was satisfied that the
statutory requirements as contemplated under Section 141 of
the NI Act were not satisfied, and, therefore, the High Court
judgment cannot be faulted. It must be noted that when the
H 1s. c2001) 4 sec 10.
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1135
[RANJANA PRAKASH DESAI, J.]
attention of this Court was drawn to observations made in Saroj
A
Kumar Poddar that the complaint must not only contain
averments justifying the requirements of Section 141 of the NI
Act but must also show as to how and in what manner the
appellant therein was responsible for the conduct of the
business of the company or otherwise responsible to it in regard
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to its functioning, this Court observed that a plain reading of
the said judgment would show that no such general law was
laid down therein and the observations were made in the
context of the said case as it was dealing with the contention
that although no direct averment was made as against the c
appellant therein fulfilling the requirements of Section 141 of the
NI Act, but, there were other averments which would show that
the appellant therein was liable therefor.
16. In N.K. Wahi it was pleaded by the appellants therein
in the complaint that M/s. Western India Industries Limited is a
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limited company and the respondents therein and some others
were the Directors/persons responsible for carrying on the
business of the company and their liability shall be joint and
several. The respondents therein filed an application invoking
Section 482 of the Code. The High Court quashed the order
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issuing summons on the ground that the evidence does not
establish that the respondents were either in charge of or were
responsible to the company for the conduct of business. In the
appeal, following SMS Pharma-(1), Sabitha Ramamurthy v.
R.B.S. Channabaasavaradhya17 and Saroj Kumar Poddar, a
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two-Judge Bench of this Court reiterated what is stated in the
said judgments that Section 141 raises a legal fiction by reason
of which a person, although is not personally liable for
commission of such an offence, would be vicariously liable
therefor. Such vicarious liability can be inferred against the
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company only if the requisite statement is made in the
complaint. It was further observed that before a person can be
made vicariously liable, strict compliance with the statutory
requirements would be insisted. It is clear that this is a case
17. (2006) 10 sec sa1.
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(2014] 10 S.C.R.
A where the basic averments in terms of Section 141 were absent
and the two-Judge Bench followed SMS Pharma-(1) and
confirmed the quashing of the complaint. The relevant
paragraph of this judgment needs to be quoted.
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"8. To launch a prosecution, therefore, against the
alleged Directors there must be a specific a/legation in
the complaint as to the part played by them in the
transaction. There should be clear and unambiguous
allegation as to how the Directors are in-charge and
responsible for the conduct of the business of the
company. The description should be clear. It is true that
precise words from the provisions of the Act need not be
reproduced and the court can always come to a
conclusion in facts of each case. But still, in the absence
of any averment or specific evidence the net result would
be that complaint would not be entertainable. •
17. In N. Rangachari a two-Judge Bench of this Court was
again dealing with the same question. Averments made in the
complaint before the two-Judge Bench were similar in nature
E as the averments made in the complaint in the present case.
The complainant therein was Bharat Sanchar Nigam Limited
(BSNL). Its case was that the cheques issued by the Data
Access (India) Limited in discharge of their pre-existing
liabilities were dishonoured for insufficiency of funds. A petition
F was filed for quashing the complaint by the appellant-Data
Access (India) Limited stating that he was nominated as a
. honorary chairman of the company without any remuneration
and was holding an honorary post in the company. He was
never assigned with the financial and business activities. The
G complaint did not contain adequate averments to justify
initiation of criminal proceedings against him. The High Court
dismissed the petition on the ground that the court cannot
decide the pleas raised by the appellant in a petition filed under
Section 482 of the Code. Those please will have to be
H established in trial. This Court referred to the relevant extracts
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1137
[RANJANA PRAKASH DESAI, J.]
from Palmer's Company Law18, Guide to the Companies Act
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by A. Ramaiya19 and Principles of Modern Company Law by
Gower and Davies20 and expressed that in the commercial
world, a person having a transaction with a company is entitled
to presume that the Directors of the company are in charge of
the affairs of the company and it is for the Directors to prove
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to the contrary at the trial. This Court also observed that a
person having business dealings with the company may not be
aware of the arrangement within the company in regard to its
management. Pertinently, this Court expressed that the decision
of the three-Judge Bench in SMS Pharma-(1) was binding on c
it. The two-Judge Bench understood SMS Pharma-(1) as laying
down the law that what is to be looked into is whether in the
complaint, in addition to asserting that accused are the
Directors of the company, it is further alleged that they are in
charge of and responsible to the company for the conduct of
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the business of the company. This Court observed that reading
the complaint, as a whole, it was clear that the allegations in
the complaint were that at the time when two dishonoured
cheques were issued by the company, the appellants therein
were the Directors of the company and were in charge of the
affairs of the company, and, therefore, the High Court had rightly
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dismissed the petition;
18. In Paresh P. Rajda v. State of Maharashtra and anr. 21 ,
similar question arose before a two-Judge Bench of this Court.
The High Court had refused to quash the complaint on the
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ground that an overall reading of the complaint showed that
specific allegations had been levelled against the appellant that
he being a responsible officer of the company was equally
liable and that if it is ultimately found that he had, in fact, no role
to play, he would be entitled to an acquittal. It appears that
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18. 20'" Edition.
19. 16'" Edition.
20. 17'" Edition.
21. (2008) 7 sec 442.
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[2014] 10 S.C.R.
A thereafter accused 2 and 4, the Chairman and a Director
r.espectively of the company approached this Court. This Court
referred to SMS Pharma~(1) and N. Rangachari and noted a
slight departure in N. Rangachari in favour of the complainant
from the view taken in SMS Pharma-(1) and further noted that
B ultimately the entire matter would boil down to an examination
of the nature of averments made in the complaint. The twoJudge Bench quoted the relevant paragraphs of the complaint
in which it was stated that accused 2 was the Chairman of the
company and was responsible for the day-to-day affairs of the
c company and was, therefore, liable to repay the amounts of
dishonoured cheques. It was further stated in the complaint that
accused 3 being Joint Managing Director and accused 4, 5 and
6 being Directors of the company are responsible officers of
the company and, therefore, they are liable to repay the
D amounts of the dishonoured cheques. This Court observed that
from the High Court judgment, it appears that the question as
to whether accused 2 was responsible for the business of the
comparJY had not been seriously challenged. This Court
observed that there were clear allegations against both the
E appellants-accused; that they were officers of the company and
were responsible for the affairs of the company and that at a
stage where the trial had not yet started, it is inappropriate to
quash the proceedings against them.
19. In Ma/wa Cotton & Spinning Mills Ltd., the High Court
F had accepted the prayer of respondent 1 for quashing the
proceedings initiated against him under Section 138 of the NI
Act on the ground that he had resigned from the Directorship
before the cheques were issued. This Court was of the view
that whether respondent 1 had resigned before the cheques
G were issued involves factual dispute. Referring to N.
Rangachari, where it is observed that a person in the
commercial world having a transaction with a company is
entitled to presume that the Directors of the company are in
charge of the affairs of the company and if any restriction on
H their powers is placed by the Memorandum of Articles of the
GUNMALA SALES PRIVATE LTD. v. ANU MEHTA 1139
[RANJANA PRAKASH DESAI, J.]
Company, it is for the Directors to establish that in the trial this
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Court allowed the appeal filed by the complainant holding that
the High Court was not justified in quashing the proceedings
against respondent 1.
20. In K.K. Ahuja, where this Court was considering a
similar question after referring to SMS Pharma-(1), SMS
8
Pharma-(2), Saroj Kumar Poddar and N.K. Wahi and other
relevant judgments and after referring to the relevant provisions
of the Companies Act, this Court summarized the position
under Section 141 of the NI Act as under:
"27.