# SUNITA PALITA & OTHERS v. M/S PANCHAMI STONE QUARRY

- **Citation:** [2022] 14 S.C.R. 458
- **Court:** Supreme Court of India
- **Decided:** 2022-08-01
- **Case number:** Criminal Appeal No. 1105 of 2022
- **Bench:** Indira Banerjee, J. K. Maheshwari
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sunita-palita-others-v-m-s-panchami-stone-quarry-35738
- **Pages:** 20

## Headnote

Code of Criminal Procedure, 1973: s.482 - Quashing of
proceedings - Dishonour of cheque - Account Payee Cheque signed
by accused no. 2, who was M.D. of the Company in favour of
respondent in discharge of liability - On dishonour of cheque,
respondent filed complaint u/s.138 r/w s.141 of NI Act - In the
complaint, appellants who were independent/non-executive director
were impleaded as accused no. 3 to 5 - Appellants unsuccessfully
filed application in High Court u/s.482 praying that the proceeding
be quashed - Hence instant appeal - Held: Jurisdiction u/s.482
must be exercised if the interest of justice so requires - High Court
failed to appreciate that none of these appellants were Managing
Director or Joint Managing Director of the Accused Company -
Nor were they signatories of the cheque which was dishonoured -
A Director of a company who was not in charge or responsible for
the conduct of the business of the company at the relevant time, will
not be liable u/s.139 r/w. 141 of NI Act - The materials on record
clearly show that these appellants were independent, non-executive
Directors of the company - High Court adopted a hyper technical
approach in rejecting the application u/s.482 - High Court erred
in law in not exercising its jurisdiction u/s.482 in the facts and
circumstances of this case to grant relief to the appellants -
Companies Act, 2013 - ss.2(47), 149 and 150 - Negotiable
Instrument Act, 1881 - ss. 139,141.
Allowing the appeal, the Court
HELD: 1. Section 482 of the Cr.P.C. protects the inherent
power of the High Court to make such orders as may be necessary
to give effect to any order under the Cr.P.C or to prevent abuse
of the process of any Court or otherwise secure the ends of
justice. While it is true that inherent jurisdiction under Section
482 should be exercised sparingly, carefully and with caution and
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only when such exercise is justified by the tests specially laid
down in the Section, the Court is duty bound to exercise its
jurisdiction under Section 482 of the Cr.P.C. when the exercise
of such power is justified by the tests laid down in the said Section.
Jurisdiction under Section 482 of the Cr.P.C. must be exercised
if the interest of justice so requires. [Paras 34 and 35][473-G-H;
747-A-B]
2. The High Court failed to appreciate that none of these
Appellants were Managing Director or Joint Managing Director
of the Accused Company. Nor were they signatories of the cheque
which was dishonoured. As held by this Court in, inter alia, S.M.S.
Pharmaceuticals Ltd., the liability under Section 138/141 of the
NI Act arises from being in charge of and responsible for the
conduct of the business of the company at the relevant time when
the offence was committed, and not on the basis of merely holding
a designation or office in a company. It would be a travesty of
justice to drag Directors, who may not even be connected with
the issuance of a cheque or dishonour thereof, such as Director
(Personnel), Director (Human Resources Development) etc. into
criminal proceedings under the NI Act, only because of their
designation. [Paras 38 and 42][474-E-F; 475-E-G]
S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (2005) 8
SCC 89 : [2005] 3 Suppl. SCR 371 - followed.
3. Liability depends on the role one plays in the affairs of a
company and not on designation or status alone. The materials
on record clearly show that these Appellants were independent,
non-executive Directors of the company. A non-Executive
Director is not involved in the day-to-day affairs of the company
or in the running of its business. Such Director is in no way
responsible for the day-to-day running of the Accused Company.
Moreover, when a complaint is filed against a Director of the
company, who is not the signatory of the dishonoured cheque,
specific averments have to be made in the pleadings to
substantiate the contention in the complaint, that such Director
was in charge of and responsible for conduct of the business of
the Compa

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[2022] 14 S.C.R. 458
458
SUNITA PALITA & OTHERS
v.
M/S PANCHAMI STONE QUARRY
(Criminal Appeal No. 1105 of 2022)
AUGUST 01, 2022
[INDIRA BANERJEE AND J. K. MAHESHWARI, JJ.]
Code of Criminal Procedure, 1973: s.482 - Quashing of
proceedings - Dishonour of cheque - Account Payee Cheque signed
by accused no. 2, who was M.D. of the Company in favour of
respondent in discharge of liability - On dishonour of cheque,
respondent filed complaint u/s.138 r/w s.141 of NI Act - In the
complaint, appellants who were independent/non-executive director
were impleaded as accused no. 3 to 5 - Appellants unsuccessfully
filed application in High Court u/s.482 praying that the proceeding
be quashed - Hence instant appeal - Held: Jurisdiction u/s.482
must be exercised if the interest of justice so requires - High Court
failed to appreciate that none of these appellants were Managing
Director or Joint Managing Director of the Accused Company -
Nor were they signatories of the cheque which was dishonoured -
A Director of a company who was not in charge or responsible for
the conduct of the business of the company at the relevant time, will
not be liable u/s.139 r/w. 141 of NI Act - The materials on record
clearly show that these appellants were independent, non-executive
Directors of the company - High Court adopted a hyper technical
approach in rejecting the application u/s.482 - High Court erred
in law in not exercising its jurisdiction u/s.482 in the facts and
circumstances of this case to grant relief to the appellants -
Companies Act, 2013 - ss.2(47), 149 and 150 - Negotiable
Instrument Act, 1881 - ss. 139,141.
Allowing the appeal, the Court
HELD: 1. Section 482 of the Cr.P.C. protects the inherent
power of the High Court to make such orders as may be necessary
to give effect to any order under the Cr.P.C or to prevent abuse
of the process of any Court or otherwise secure the ends of
justice. While it is true that inherent jurisdiction under Section
482 should be exercised sparingly, carefully and with caution and
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only when such exercise is justified by the tests specially laid
down in the Section, the Court is duty bound to exercise its
jurisdiction under Section 482 of the Cr.P.C. when the exercise
of such power is justified by the tests laid down in the said Section.
Jurisdiction under Section 482 of the Cr.P.C. must be exercised
if the interest of justice so requires. [Paras 34 and 35][473-G-H;
747-A-B]
2. The High Court failed to appreciate that none of these
Appellants were Managing Director or Joint Managing Director
of the Accused Company. Nor were they signatories of the cheque
which was dishonoured. As held by this Court in, inter alia, S.M.S.
Pharmaceuticals Ltd., the liability under Section 138/141 of the
NI Act arises from being in charge of and responsible for the
conduct of the business of the company at the relevant time when
the offence was committed, and not on the basis of merely holding
a designation or office in a company. It would be a travesty of
justice to drag Directors, who may not even be connected with
the issuance of a cheque or dishonour thereof, such as Director
(Personnel), Director (Human Resources Development) etc. into
criminal proceedings under the NI Act, only because of their
designation. [Paras 38 and 42][474-E-F; 475-E-G]
S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (2005) 8
SCC 89 : [2005] 3 Suppl. SCR 371 - followed.
3. Liability depends on the role one plays in the affairs of a
company and not on designation or status alone. The materials
on record clearly show that these Appellants were independent,
non-executive Directors of the company. A non-Executive
Director is not involved in the day-to-day affairs of the company
or in the running of its business. Such Director is in no way
responsible for the day-to-day running of the Accused Company.
Moreover, when a complaint is filed against a Director of the
company, who is not the signatory of the dishonoured cheque,
specific averments have to be made in the pleadings to
substantiate the contention in the complaint, that such Director
was in charge of and responsible for conduct of the business of
the Company or the Company, unless such Director is the
designated Managing Director or Joint Managing Director who
SUNITA PALITA & OTHERS v. M/S PANCHAMI STONE
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would obviously be responsible for the company and/or its
business and affairs. [Para 43][475-G-H; 476-A-B]
Pooja Ravinder Devidasani v. State of Maharashtra and
Anr. (2014) 16 SCC 1 : [2014] 14 SCR 1468- relied
on.
K.K. Ahuja v. V.K. Vora (2009) 10 SCC 48 : [2009]
9 SCR 1144; National Small Industries Corporation
Ltd. v. Harmeet Singh Paintal (2010) 3 SCC 330 : [2010]
2 SCR 805; Pepsi Foods Ltd. v. Special Judicial
Magistrate and Ors. (1998) 5 SCC 749 : [1997] 5 Suppl.
SCR 12 - referred to.
Case Law Reference
[2005] 3 Suppl. SCR 371
followed
Para 23
[2009] 9 SCR 1144
referred to
Para 28
[2014] 14 SCR 1468
relied on
Para 29
[2010] 2 SCR 805
referred to
Para 46
[1997] 5 Suppl. SCR 12
referred to
Para 47
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
1105 of 2022.
From the Judgment and Order dated 11.09.2019 of the High Court
of Calcutta in CRR No.2835 of 2018.
Sidharth Luthra, Sr. Adv., Saraswat Mohapatra, Akshat Kumar,
Ms. S. Janani, Advs. for the Appellants.
Sanjay R. Hegde, Sr. Adv., Dibyadyuti Banerjee, Abhijit Sengupta,
Advs. for the Respondent.
The Judgment of the Court was delivered by
INDIRA BANERJEE, J.
 Leave granted.
2. This appeal is against a judgment and order dated 11th
September 2019 passed by the Calcutta High Court dismissing the
Criminal Revisional Application being C.R.R. No.2835 of 2018 filed by
the Appellants being the 3rd, 4th and 5th Accused, under Section 482 of
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the Code of Criminal Procedure, 1973, hereinafter referred to as "the
Cr.P.C.", for quashing the proceedings in Case No. AC/121/2017, inter
alia, under Section 138/141 of the Negotiable Instruments Act, 1881,
hereinafter referred to as "the NI Act", pending against the Appellants
in the Court of the Judicial Magistrate, 2nd Court, Suri, Birbhum, West
Bengal.
3. The Respondent M/s Panchami Stone Quarry, hereinafter
referred to as "PSQ" filed a petition of complaint, inter alia, against the
Appellants under Section 138/141 of the NI Act which was registered
as Case No. AC/121/2017.
4. In the petition of complaint, PSQ impleaded M/s MBL
Infrastructure Limited, a public limited company, within the meaning of
the Companies Act 2013 (hereinafter referred to as "the Accused
Company"), as Accused No.1. One Mr. Anjanee Kumar Lakhotia,
Managing Director of the Accused Company was impleaded as the
Accused No.2 and the Appellants were impleaded as Accused Nos. 3, 4
and 5. The Appellant No.1 was the fourth accused, Appellant No.2 was
the fifth accused and Appellant No.3 was the third accused.
5. In the said petition of complaint, PSQ alleged "Accused Nos.2,
3, 4 and 5 are the Directors of Accused No.1. i.e., M/s MBL
Infrastructures Ltd. respectively [and] are responsible to conduct
the day-to-day business affairs of the Accused No.1."
6. The Accused Company placed orders on PSQ on different
dates for purchase, inter alia, of Stone Dust and Stone Aggregate.
Purchase Orders dated 24.12.2015, 25.05.2016, 07.01.2016 and
09.04.2016 were issued by the Accused Company, specifying the
materials required to be supplied, along with the rates and quantity thereof.
7. Pursuant to the aforesaid purchase orders, PSQ supplied
materials to the Accused Company, and raised bills totalling
Rs.2,31,60,674/- (Rupees Two Crore, Thirty One Lakhs, Sixty Thousand,
Six Hundred and Seventy Four only) on the Accused Company.
8. In discharge of its liability against the bills raised by PSQ on the
Accused Company, the Accused Company had issued an Account Payee
Cheque being No.001174 dated 15th March 2017 for a sum of
Rs.1,71,08,512/- (Rupees One Crore, Seventy One Lakhs, Eight
Thousand, Five Hundred and Twelve only) drawn on the Park Street
Branch of Kotak Mahindra Bank at Kolkata, in favour of PSQ.
SUNITA PALITA & OTHERS v. M/S PANCHAMI STONE
QUARRY [INDIRA BANERJEE, J.]
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9. It is not in dispute that the Accused No.2-Anjanee Kumar
Lakhotia is the Managing Director and authorised signatory of the Accused
Company. The said Accused No.2, Anjanee Kumar Lakhotia signed the
said cheque.
10. In the Petition of Complaint there is a bald averment that the
Appellants being the Accused Nos. 3, 4 and 5 were Directors of the
Accused Company and responsible for the day-to-day affairs of the
Accused Company. This averment is devoid of any particulars.
11. On 10th April 2017, PSQ deposited the cheque in its bank for
encashment, but the cheque was dishonoured, with the endorsement
'account closed'. On 3rd May 2017, PSQ received intimation of dishonour
of the cheque from its banker. Thereafter, PSQ sent a demand notice
dated 29th May 2017 by speed post, calling upon the Accused to make
payment of the amount of the dishonoured cheque, as per the provisions
of Section 138 of the NI Act.
12. Alleging that the Accused Company had not paid the amount
of the dishonoured cheque, that is, Rs.1,71,08,512/- (Rupees One Crore,
Seventy One Lakhs, Eight Thousand, Five Hundred and Twelve only) to
PSQ within the time stipulated, PSQ filed the aforesaid complaint under
Section 138 read with Section 141 of the NI Act, through its proprietor.
13. By an order dated 13th July 2017, the Additional Chief Judicial
Magistrate, 2nd Court, Suri, Birbhum registered the petition as a complaint
case, and after taking cognizance, directed issuance of summons to the
Accused, with liberty to the Accused to adopt plea bargaining. Case
records were directed to be transferred to the file of the Judicial
Magistrate, 2nd Court, Suri, Birbhum. On the same day, the Judicial
Magistrate, 2nd Court, Suri, Birbhum, West Bengal, received the case
records for trial and disposal.
14. On 26th March 2018, the Accused appeared through Advocates
and filed petitions under Section 205 of the Cr.P.C. and under Section
305 of the Cr.P.C. Sections 205 and 305 of the Cr.P.C. are set out
hereinbelow:-
"Section 205. Magistrate may dispence with personal
appearance of accused.- (1) Whenever a Magistrate issues a
summons, he may, if he sees reason so to do, dispense with
the personal attendance of the accused and permit him to
appear by his pleader.
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(2) But the Magistrate inquiring into or trying the case may,
in his discretion, at any stage of the proceedings, direct the
personal attendance of the accused, and, if necessary, enforce
such attendance in the manner hereinbefore provided."
***
"Section 305. Procedure when corporation or registered society
is an accused.- (1) In this section, "corporation" means an
incorporated company or other body corporate, and includes
a society registered under the Societies Registration Act, 1860
(21 of 1860).
(2) Where a corporation is the accused person or one of the
accused persons in an inquiry or trial, it may appoint a
representative for the purpose of the inquiry or trial and such
appointment need not be under the seal of the corporation.
(3) Where a representative of a corporation appears, any
requirement of this Code that anything shall be done in the
presence of the accused or shall be read or stated or explained
to the accused, shall be construed as a requirement that thing
shall be done in the presence of the representative or read or
stated or explained to the representative, and any requirement
that the accused shall be examined shall be construed as a
requirement that the representative shall be examined.
(4) Where a representative of a corporation does not appear,
any such requirement as is referred to in subsection (3) shall
not apply.
(5) Where a statement in writing purporting to be signed by
the Managing Director of the corporation or by any person
(by whatever name called) having, or being one of the persons
having the management of the affairs of the corporation to
the effect that the person named in the statement has been
appointed as the representative of the corporation for the
purposes of this section, is filed, the Court shall, unless the
contrary is proved, presume that such person has been so
appointed.
(6) If a question arises as to whether any person, appearing
as the representative of a corporation in an inquiry or trial
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before a Court is or is not such representative, the question
shall be determined by the Court."
15. By an order dated 9th July 2018, the Court of Judicial Magistrate,
2nd Court, Suri, Birbhum declined to dispense with the appearance of the
Appellants and directed the accused to appear on 20th August 2018.
16. On 26th March 2018, the matter was adjourned till 16th May
2018 for appearance. The case was heard on diverse dates and ultimately
adjourned till 9th July 2018 for Orders. By an Order dated 9th July 2018,
the Judicial Magistrate, 2nd Court, Suri, Birbhum rejected the Petitions
under Sections 305 and 205 of the Cr.P.C., in the absence of the accused
persons. The Court directed the accused persons to remain present in
Court positively on next date, that is 20th August 2018 to face appropriate
proceedings.
17. The Appellants filed a Criminal Revisional Application in the
High Court under Section 482 of the Cr.P.C., inter alia, praying that the
proceedings in Case No.AC.121/2017 under Section 138 read with
Section 141 of the NI Act pending in the Court of the Judicial Magistrate,
2nd Court, Suri be quashed and pending such order, all proceedings in the
said case be stayed.
18. In the High Court, it was contended that the Judicial Magistrate,
2nd Court, Suri, dealt with the application under Section 205 of the Cr.P.C.
without considering whether any useful purpose would be served by
requiring the personal attendance of the Accused or whether the progress
of the trial was likely to be hampered on account of their absence.
19. By the judgment and order impugned in this Appeal, a Single
Bench of the High Court rejected the application under Section 482 of
the Cr.P.C. Being aggrieved, the Appellants have approached this Court.
The Appellants claim that they are independent non-executive Directors
of the Accused Company, who are in no way responsible for the day-today affairs of the Accused Company.
20. Mr. Sidharth Luthra appearing on behalf of the Appellants
submitted that Section 205 of the Cr.P.C. confers discretion on the Court
to exempt personal appearance of an accused, till such time as his
appearance may be considered necessary. In considering an application
under Section 205 of the Cr.P.C., the Magistrate has to bear in mind the
nature of the case, as also the conduct of the persons summoned. The
Magistrate may not exempt personal appearance, where any useful
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purpose would be served by requiring the personal attendance of the
accused, or where the progress of the trial was likely to be hampered on
account of his absence.
21. Mr. Luthra pointed out that Section 305 of the Cr.P.C. provides
how a body corporate, made accused in a criminal case, may be
represented. The Magistrate overlooked the fact that the Accused
Company was being represented by an authorized officer.
22. Mr. Luthra further argued that Section 141 of the NI Act
being a penal provision creating vicarious liability, the same must be
strictly construed. Mere statement in the complaint that the Appellants
were in charge of and responsible to the Accused Company, for the
conduct of the business of the Accused Company without any specific
role attributed to the Appellants, was not sufficient for proceeding against
the Appellants under Section 141 of the said Act.
23. In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla1 cited by
Mr. Luthra, this Court held:
"10. While analysing Section 141 of the Act, it will be seen
that it operates in cases where an offence under Section 138
is committed by a company. The key words which occur in the
section are "every person". These are general words and take
every person connected with a company within their sweep.
Therefore, these words have been rightly qualified by use of
the words:
"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, etc."
What is required is that the persons who are sought to be
made criminally liable under Section 141 should be, at the
time the offence was committed, in charge of and responsible
to the company for the conduct of the business of the company.
Every person connected with the company shall not fall within
the ambit of the provision. It is only those persons who were
in charge of and responsible for the conduct of business of
the company at the time of commission of an offence, who
1 (2005) 8 SCC 89
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will be liable for criminal action. It follows from this that if a
director of a company who was not in charge of and was not
responsible for the conduct of the business of the company at
the relevant time, will not be liable under the provision. The
liability arises from being in charge of and responsible for
the conduct of business of the company at the relevant time
when the offence was committed and not on the basis of merely
holding a designation or office in a company. Conversely, a
person not holding any office or designation in a company
may be liable if he satisfies the main requirement of being in
charge of and responsible for the conduct of business of a
company at the relevant time. Liability depends on the role one
plays in the affairs of a company and not on designation or
status. If being a director or manager or secretary was enough
to cast criminal liability, the section would have said so. Instead
of "every person" the section would have said "every director,
manager or secretary in a company is liable"..., etc. The
legislature is aware that it is a case of criminal liability which
means serious consequences so far as the person sought to be
made liable is concerned. Therefore, only persons who can be
said to be connected with the commission of a crime at the
relevant time have been subjected to action."
24. Mr. Luthra emphatically argued that the Appellants are
independent, non-executive Directors of the Accused Company and in
no way responsible for the day-to-day affairs of the Accused Company.
Such Directors are inducted in the company for their expertise or special
knowledge in any particular discipline. They are not in charge of the
management of the company.
25. Mr. Luthra argued that the Appellants had relied on
unimpeachable documents, particularly, Form No. DIR-12 of Appellant
No.1 and Appellant No.3, and DRI Form No.32 of the Appellant No.2,
which showed the status of the respective Appellants as Non-Executive
Independent Directors w.e.f. 01.04.2014.The Appellants being NonExecutive Independent Directors, are entitled to have the Complaint
Case No. AC/121/2017 quashed as against them.
26. Mr. Luthra referred to Section 2(47) and Section 149 of the
Companies Act, 2013 dealing with independent Directors which are
extracted hereinbelow for convenience:-
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"2. Definitions: ...
(47) "independent director" means an independent director
referred to in sub-section (5) of section 149;
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149. Company to have Board of Directors: ...
(6) An independent director in relation to a company, means
a director other than a managing director or a whole-time
director or a nominee director,-
(a) who, in the opinion of the Board, is a person of integrity
and possesses relevant expertise and experience;
(b)(i) who is or was not a promoter of the company or its
holding, subsidiary or associate company;
(ii) who is not related to promoters or directors in the company,
its holding, subsidiary or associate company;
(c) who has or had no pecuniary relationship, other than
remuneration as such director or having transaction not
exceeding ten per cent of his total income or such amount as
may be prescribed, with the company, its holding, subsidiary
or associate company, or their promoters, or directors, during
the two immediately preceding financial years or during the
current financial year;
(d) none of whose relatives-
(i) is holding any security of or interest in the company, its
holding, subsidiary or associate company during the two
immediately preceding financial years or during the current
financial year:
Provided that the relative may hold security or interest in the
company of face value not exceeding fifty lakh rupees or two
per cent. of the paid-up capital of the company, its holding,
subsidiary or associate company or such higher sum as may
be prescribed;
(ii) is indebted to the company, its holding, subsidiary or
associate company or their promoters, or directors, in excess
of such amount as may be prescribed during the two
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immediately preceding financial years or during the current
financial year;
(iii) has given a guarantee or provided any security in
connection with the indebtedness of any third person to the
company, its holding, subsidiary or associate company or their
promoters, or directors of such holding company, for such
amount as may be prescribed during the two immediately
preceding financial years or during the current financial year;
or
(iv) has any other pecuniary transaction or relationship with
the company, or its subsidiary, or its holding or associate
company amounting to two per cent or more of its gross
turnover or total income singly or in combination with the
transactions referred to in sub-clause (i), (ii) or (iii);
(e) who, neither himself nor any of his relatives-
(i) holds or has held the position of a key managerial
personnel or is or has been employee of the company or its
holding, subsidiary or associate company in any of the three
financial years immediately preceding the financial year in
which he is proposed to be appointed:
 Provided that in case of a relative who is an employee, the
restriction under this clause shall not apply for his employment
during preceding three financial years.
(ii) is or has been an employee or proprietor or a partner, in
any of the three financial years immediately preceding the
financial year in which he is proposed to be appointed, of-
(A) a firm of auditors or company secretaries in practice or
cost auditors of the company or its holding, subsidiary or
associate company; or
(B) any legal or a consulting firm that has or had any
transaction with the company, its holding, subsidiary or
associate company amounting to ten per cent or more of the
gross turnover of such firm;
(iii) holds together with his relatives two per cent or more of
the total voting power of the company; or
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(iv) is a Chief Executive or director, by whatever name called,
of any non-profit organisation that receives twenty-five per
cent or more of its receipts from the company, any of its
promoters, directors or its holding, subsidiary or associate
company or that holds two per cent or more of the total voting
power of the company; or
(f) who possesses such other qualifications as may be
prescribed."
27. Mr. Luthra has also referred to Section 150 of the Companies
Act, 2013 which is set out hereinbelow:-
150. Manner of selection of independent directors and
maintenance of databank of independent directors.-(1)
Subject to the provisions contained in sub-section (5) of
Section 149, an independent director may be selected from a
data bank containing names, addresses and qualifications
of persons who are eligible and willing to act as independent
directors, maintained by any body, institute or association,
as may by notified by the Central Government, having
expertise in creation and maintenance of such data bank and
put on their website for the use by the company making the
appointment of such directors:
Provided that responsibility of exercising due diligence before
selecting a person from the data bank referred to above, as
an independent director shall lie with the company making
such appointment.
(2) The appointment of independent director shall be approved
by the company in general meeting as provided in sub-section
(2) of Section 152 and the explanatory statement annexed to
the notice of the general meeting called to consider the said
appointment shall indicate the justification for choosing the
appointee for appointment as independent director.
(3) The data bank referred to in sub-section (1), shall create
and maintain data of persons willing to act as independent
director in accordance with such rules as may be prescribed.
(4) The Central Government may prescribe the manner and
procedure of selection of independent directors who fulfil the
qualifications and requirements specified under Section 149.
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28. In K.K. Ahuja v. V.K. Vora2 this Court discussed the principles
of the vicarious liability of the officers of a company in respect of
dishonour of a cheque and held: -
"27. The position under Section 141 of the Act can be
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 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 that they 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 the cheque on behalf of the company, there is no
need to make a specific averment that he was in charge of
and was responsible to the company, for the conduct of the
business of the company or make any specific allegation about
consent, connivance or negligence. 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 the 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 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 Act. 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.
2 (2009) 10 SCC 48
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(iv) Other officers of a company cannot be made liable under
sub-section (1) of Section 141. Other officers 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."
29. In Pooja Ravinder Devidasani v. State of Maharashtra
and Anr.3 this Court held as under:-
"17. ... Non-executive Director is no doubt a custodian of the
governance of the company but is not involved in the day-today affairs of the running of its business and only monitors
the executive activity. To fasten vicarious liability under Section
141 of the Act on a person, at the material time that person
shall have been at the helm of affairs of the company, one
who actively looks after the day-to-day activities of the
company and is particularly responsible for the conduct of
its business. Simply because a person is a Director of a
company, does not make him liable under the NI Act. Every
person connected with the Company will not fall into the ambit
of the provision. Time and again, it has been asserted by this
Court that only those persons who were in charge of and
responsible for the conduct of the business of the Company
at the time of commission of an offence will be liable for
criminal action. A Director, who was not in charge of and
was not responsible for the conduct of the business of the
Company at the relevant time, will not be liable for an offence
under Section 141 of the NI Act. In National Small Industries
Corpn. [National Small Industries Corpn. Ltd. v. Harmeet
Singh Paintal, (2010) 3 SCC 330 : (2010) 1 SCC (Civ) 677 :
(2010) 2 SCC (Cri) 1113] this Court observed: (SCC p. 336,
paras 13-14)
"13. Section 141 is a penal provision creating vicarious
liability, and which, as per settled law, must be strictly
construed. It is therefore, not sufficient to make a bald
cursory statement in a complaint that the Director (arrayed
as an accused) is in charge of and responsible to the
3 (2014) 16 SCC 1
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company for the conduct of the business of the
company without anything more as to the role of the
Director. But the complaint should spell out as to how and
in what manner Respondent 1 was in charge of or was
responsible to the accused Company for the conduct of its
business. This is in consonance with strict interpretation of
penal statutes, especially, where such statutes create
vicarious liability.
14. A company may have a number of Directors and to
make any or all the Directors as accused in a complaint
merely on the basis of a statement that they are in charge
of and responsible for the conduct of the business of the
company without anything more is not a sufficient or
adequate fulfilment of the requirements under Section
141."
***
18. In Girdhari Lal Gupta v. D.H. Mehta [Girdhari Lal
Gupta v. D.H. Mehta, (1971) 3 SCC 189 : 1971 SCC (Cri)
279 : AIR 1971 SC 2162] , this Court observed that a person
"in charge of a business" means that the person should be in
overall control of the day-to-day business of the Company.
19. A Director of a company is liable to be convicted for an
offence committed by the company if he/she was in charge of
and was responsible to the company for the conduct of its
business or if it is proved that the offence was committed with
the consent or connivance of, or was attributable to any
negligence on the part of the Director concerned (see State
of Karnataka v. Pratap Chand [State of Karnataka v. Pratap
Chand, (1981) 2 SCC 335 : 1981 SCC (Cri) 453] ).
20. In other words, the law laid down by this Court is that for
making a Director of a company liable for the offences
committed by the company under Section 141 of the NI
Act, there must be specific averments against the Director
showing as to how and in what manner the Director was
responsible for the conduct of the business of the company."
30. As held in K.K. Ahuja v. V.K. Vora (supra) when the accused
is the Managing Director or a Joint Managing Director of a company, it
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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. This is because the prefix "Managing" to the
word "Director" makes it clear that the Director was in charge of and
responsible to the company, for the conduct of the business of the
company. A Director or an Officer of the company who signed the cheque
renders himself liable in case of dishonour. Other officers of a company
can be made liable only under sub-section (2) of Section 141 of the NI
Act 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.
31. In course of the hearing Mr. Luthra emphasized on the
proceedings initiated against the Accused Company under Section 7 of
the Insolvency and Bankruptcy Code 2016, hereinafter referred to as
the "IBC".
32. By an order dated 30th March 2017, the Calcutta Bench of
the National Company Law Tribunal, hereinafter referred to as the
"NCLT", admitted the application of a Financial Creditor of the Accused
Company for appointment of an Interim Resolution Professional (IRP)
to administer the Accused Company, as a result of which the Appellants
were suspended by operation of law. When statutory notice of dishonour
was sent to the Appellants, the management of the Accused Company
had been taken over by the IRP.
33. It is stated that PSQ had availed the remedy under the IBC
and filed its claim before the IRP, which now forms part of an Approved
Resolution Plan of the Accused Company. PSQ would, therefore, be
paid in terms of the Approved Resolution Plan. Mr. Luthra submitted
that the Resolution Plan of the Accused Company had been upheld by
the National Company Law Appellate Tribunal (NCLAT). All appeals
against the Resolution Plan had been dismissed by the NCLAT.
34. Section 482 of the Cr.P.C. protects the inherent power of the
High Court to make such orders as may be necessary to give effect to
any order under the Cr.P.C or to prevent abuse of the process of any
Court or otherwise secure the ends of justice.
35. While it is true that inherent jurisdiction under Section 482
should be exercised sparingly, carefully and with caution and only when
such exercise is justified by the tests specially laid down in the Section,
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the Court is duty bound to exercise its jurisdiction under Section 482 of
the Cr.P.C. when the exercise of such power is justified by the tests laid
down in the said Section. Jurisdiction under Section 482 of the Cr.P.C.
must be exercised if the interest of justice so requires.
36. The High Court rightly held that when a complaint was filed
against the Director of a company, a specific averment that such person
was in charge of and responsible for the conduct of business of the
company was an essential requirement of Section 141 of the NI Act.
The High Court also rightly held that merely being a Director of the
company is not sufficient to make the person liable under Section 141 of
the NI Act. The requirement of Section 141 of the NI Act was that the
person sought to be made liable should be in charge of and responsible
for the conduct of the business of the company. This has to be averred
as a fact.
37. The High Court also rightly held that the Managing Director
or Joint Managing Director would admittedly be in charge of the company
and responsible to the company for the conduct of its business by virtue
of the office they hold as Managing Director or Joint Manging Director.
These persons are in charge of and responsible for the conduct of the
business of the company and they get covered under Section 141 of the
NI Act. A signatory of a cheque is clearly liable under Section 138/141
of the NI Act.
38. The High Court, however, failed to appreciate that none of
these Appellants were Managing Director or Joint Managing Director
of the Accused Company. Nor were they signatories of the cheque which
was dishonoured.
39. The High Court proceeded to hold that, in construing a
complaint, a hyper technical approach should not be adopted, to quash
the same. The High Court observed rightly that the laudable object of
preventing bouncing of cheques and sustaining the credibility of
commercial transactions, resulting in enactment of Sections 138 and 141
of the NI Act has to be borne in mind. A complaint should also not be
read with a pedantically hyper technical approach to deny relief under
Section 482 of the Cr.P.C. to those impleaded as accused, who do not
have any criminal liability in respect of the offence alleged in the complaint.
As observed by the High Court, the provisions of Section 138/141 of the
NI Act create a statutory presumption of dishonesty, against those
covered by Section 138/141 of the NI Act and expose them to criminal
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liability, if payment is not made within the statutory period, even after
issue of notice.
40. The High Court further held that the power of quashing is
required to be exercised sparingly. The High Court, in effect, found that
even though, on perusal of the complaint, it appeared that the exact
words used in Section 141 of the NI Act had not been used in the
complaint, the essential pleadings were there in the complaint.
41. There can be no doubt that in deciding a Criminal Revisional
Application under Section 482 of the Cr.P.C. for quashing a proceeding
under Section 138/141 of the NI Act, the laudable object of preventing
bouncing of cheques and sustaining the credibility of commercial
transactions resulting in enactment of the said Sections has to be borne
in mind. The provisions of Section 138/141 of the NI Act create a statutory
presumption of dishonesty on the part of the signatory of the cheque,
and when the cheque is issued on behalf of a company, also those persons
in charge of or responsible for the company or the business of the
company. Every person connected with the company does not fall within
the ambit of Section 141 of the NI Act.
42. A Director of a company who was not in charge or responsible
for the conduct of the business of the company at the relevant time, will
not be liable under those provisions. As held by this Court in, inter alia,
S.M.S. Pharmaceuticals Ltd. (supra), the liability under Section 138/
141 of the NI Act arises from being in charge of and responsible for the
conduct of the business of the company at the relevant time when the
offence was committed, and not on the basis of merely holding a
designation or office in a company. It would be a travesty of justice to
drag Directors, who may not even be connected with the issuance of a
cheque or dishonour thereof, such as Director (Personnel), Director
(Human Resources Development) etc. into criminal proceedings under
the NI Act, only because of their designation.
43. Liability depends on the role one plays in the affairs of a company
and not on designation or status alone as held by this Court in S.M.S.
Pharmaceuticals Ltd. (supra). The materials on record clearly show
that these Appellants were independent, non-executive Directors of the
company. As held by this Court in Pooja Ravinder Devidasani v. State
of Maharashtra and Anr. (supra) a non-Executive Director is not
involved in the day-to-day affairs of the company or in the running of its
business. Such Director is in no way responsible for the day-to-day
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running of the Accused Company. Moreover, when a complaint is filed
against a Director of the company, who is not the signatory of the
dishonoured cheque, specific averments have to be made in the pleadings
to substantiate the contention in the complaint, that such Director was in
charge of and responsible for conduct of the business of the Company
or the Company, unless such Director is the designated Managing
Director or Joint Managing Director who would obviously be responsible
for the company and/or its business and affairs.
44.