Dismissed

Pawan Kumar Ruia v. Global Trade Finance Ltd. and Anr.

Bombay HC23 Nov 2011APL/404/2011

Case brief

AI extract

What is this about?

The Court refused to quash criminal process issued against the Applicant, a Non-Executive Chairman, for cheque dishonour under the Negotiable Instruments Act. The Court held that specific averments in the complaint and annexures demonstrated his prima facie active involvement in securing trade finance facilities, establishing vicarious liability applicable to officers in charge of the business.

What did the court decide?

The criminal application seeking quashing of the process was dismissed, and the process issued against the applicant was allowed to remain.

Pawan Kumar Ruia Vs Global Trade Finance Ltd. and Anr. — Cheque Dishonour | Bombay HC (2011)

Apl 404.11

srp

IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL APPELLATE JURISDICTION

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CRIMINAL APPLICATION NO. 404 OF 2011.

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Pawam Kumar Ruia. ..Applicant.

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Versus

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Global Trade Finance Ltd and Anr.

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..Respondents.

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Mr. Shirish Gupte, Senior Counsel i/b M/s. Mulla & Mulla & Craigie Blunt and Caroe for the applicant. Mr. Yashpal Thakur for respondent no.1

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Mr. Rajesh More, APP for the State.

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Coram : RANJIT MORE, J. Date : November 23, 2011.

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P. C. :

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Heard Mr. Shirish Gupte, learned senior counsel for the petitioner, Mr. Yashpal Thakur, learned counsel for respondent no. 1 and Mr. Rajesh More, learned APP for respondent No.2.

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The above application is filed by original accused no.9 invoking the provisions of Section 482 of the Code of Criminal Procedure, 1973, seeking quashing of Criminal Case No. 391/ SS/2010 pending on the file of Metropolitan Magistrate, 12^th Court at Bandra, which was filed under Sections 138 read with 141 of the

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Negotiable Instruments Act, 1881 [for short “ the said Act ”].

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Respondent No.1 filed above mentioned criminal case against 14 accused including the present applicant, who is arraigned as accused no.9. Accused No.1 is a limited company duly incorporated under the Companies Act, 1956. Accused No. 2 is an Executive Director and Authorised Signatory of accused no.1 - Company. Accused No.3 is the Senior Vice President – Finance & Accounts of accused no.1-Company. Accused No.4 is the Vice President–Finance and Account of Accused No.1-Company. Accused No.5 is the Director of accused no.1 - Company. Accused No.6 is the Chief Financial Officer and Authorised Signatory of accused no.1-Company. Accused No.7 is the Authorised Signatory of accused no.1-Company. Accused No. 8 is the Authorised Signatory of accused no.1-Company. Accused No.9, who is the present Applicant, is the Chairman of accused no.1-Company. Accused Nos.10 to 13 are the Directors of accused no.1- Company. Accused No. 14 is the CEO and Whole Time Director of accused no.1- Company.

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The complaint further states that accused nos.2 to 14 on behalf of accused no.1-Company had approached the complainant with a request for trade finance facilities and accordingly the said

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facilitates had been granted by the complainant to the accused as per their request and requirement. The accused in discharge of their legally enforceable liability and debts towards repayment of the above referred trade finance facilities due and payable to the complainant, issued in all 78 cheques for an amount of Rs.38 crores, particulars of which are given in the complaint. The averment is also made that cheques at serial Nos.1 to 38 and 53 to 78 are signed by accused nos.2 and 6 while cheques at serial Nos. 39 to 52 are duly signed by accused nos.6 & 7 on behalf of accused no.1-Company. Respondent No.1– Complainant presented those cheques for encashment with its bankers, however, same were dishonored for the reasons “ insufficient funds ”. The return memoes for the same were received by the complainant on 16^th January 2010. The complainant thereafter issued statutory notices on 5^th February 2010 to all the accused in compliance with the provisions of Section 138 of the said Act and called upon them to make payment within 15 days from the date of receipt of statutory notice. The statutory notices were duly served on all the accused on or about 13/2/2010. However, the accused failed and neglected to comply with the requisition and according to the complainant they have rendered themselves liable to the prosecution for committing

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an offence punishable under Sections 138 read with 141 of the said Act.

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The Metropolitan Magistrate upon perusal of complaint, taking into consideration the verification and after making an enquiry under Section 202 of the Code of Criminal Procedure, 1973, having satisfied that the complainant has made out case for issuance of process, by his order dated 8/9/2010 issued the process against all the accused.

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The present applicant challenged the issuance of the process by filing Criminal Revision Application No. 12 of 2011 before the Sessions Court, Greater Bombay. However, the said revision was dismissed by the Sessions Court vide order dated 6^th April, 2011.

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Mr. Gupte, learned senior counsel submitted that the present Applicant is the Non-Executive Chairman of accused no.1Company. To substantiate his contention, he relied upo0n (i) Annual Report for the year 2009-10 of accused no.1- Company and (ii) the data base of the Directors of the Companies listed on

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Bombay State Exchange. He submitted that the only allegation in the complaint against present applicant is that he along with other co-accused was in-charge of and responsible for the day-to-day affairs and management of accused no.1-Company. He further submitted that the complainant has not produced on record anything to support this allegation. He submitted that the applicant in his capacity as Non-Executive Chairman does not take part in operational activities, day-to-day affairs and management of accused no.1-Company. The operational activities of accused no.1Company are being looked after by other persons who are engaged in Accused No.1-Company. Mr. Gupte, learned senior counsel, also submitted that the revisional court in separate revisions has quashed the process as against the accused nos. 11 to 14 who are the Directors of accused no.1-Company. He relied upon the Apex Court decision in SMS Pharmaceuticals v. Neeta Bhalla [(2005) 8 SCC 89] and National Small Industries Corp. Ltd. vs. Harmeet Singh Paintal and Anr. [(2010) 3 SCC 330].

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Mr. Yashpal Thakur, learned counsel for respondent no. 1 – original complainant [hereinafter for short mentioned as “the complainant” ], on the contrary supported the impugned order

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passed by the Additional Sessions Judge. He maintained that the

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complainant has made out a prima facie case against the present applicant and therefore rightly the process is issued against him under Section 138 of the said Act. He tendered copy of Annexure-A and Annexure–B annexed to the original complaint and submitted that the applicant's involvement and complicity in the day-to-day affairs and management of accused no.1 – Company is apparent. He relied upon judgment of the learned Single Judge of this Court in

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Yashomala Engineering Pvt. Ltd & Ors. vs. Tata SSL Ltd & Anr. [MANU/MH/1365/1998] to contend that there is no much difference in the position of Director and Managing Director. He lastly submitted that the application in the above circumstances is liable to be dismissed.

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Having considered rival submissions of the learned counsel appearing on behalf of the respective parties and having gone through the complaint as well as the other documents and ratio of the case laws cited before me, I find no merit in the application.

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In the cause title of application, the position of the present

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Applicant is described as Chairman of accused no.1–Company. In Para 1 of the application it is averred that the Applicant is Chairman of M/s. Dunlop India Limited. The position of each of the accused is described in Para 2 of the complaint, wherein also the present applicant is described as Chairman of accused no.1 – Company. The specific averment is made that accused nos.2 to 14 are in charge of and responsible for the day-to-day and/or conduct of the management and business of accused no.1– Company, at all relevant times of the present complaint as well as at the material time of cause of action. The complainant has made a further averment that all the accused are also responsible for the issuance of cheques in question so also for the dishonour as the accused have failed and neglected to exercise care and caution in ensuring that the cheques are honoured when presented for encashment. It is further averred that accused no.1 – Company along with accused nos.2 to 14 have connived in the commission of offence in their capacity as Directors/Authorised Signatories as well as Officers of accused no.1–Company. In paragraph No.3 of the complaint, the Complainant has stated that accused nos.2 to 14, on behalf of accused no.1–Company had approached the complainant

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with a request for trade finance facilities and accordingly the said facilities had been granted by the Complainant to the accused as per their request and requirement.

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. The complainant at Exhibit-B and C to the complaint, has annexed sanction letter and subsequent amendments thereof. Exhibit-B to the Complaint is the letter dated 5^th October, 2007 from the Complainant to accused no.1-Company, whereunder the complainant-Company sanctioned to accused no.1-Company the trade finance facilities as per the terms sheet enclosed. The complainant has annexed another letter dated 29^th April 2008 written by the Complainant-Company to accused no.1-Company making some amendments to the original sanction letter dated 21^st April, 2008. At the top of these letters, there is an endorsement “ kind attention of Mr. Pawan Kumar Ruia, Chairman ”, who is Applicant herein. Thus, specific attention of the applicant was invited to the sanction letter, and letter making some amendment to earlier sanction letter.

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The above correspondence is for a period much prior to the grant of trade finance facilities to accused no.1-Company and issuance of cheques by accused no.1-Company to the complainant

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in discharge of their liability. The fact that the attention of the Chairman of accused no.1-Company, i.e., the present applicant, was specifically invited, in my view, prima facie, shows that the present applicant was actively involved in securing the said trade finance facilities from the complainant. Had applicant been not incharge of day-to-day affairs and management of business of accused no.1-Company, there was no need for the complainant to mark those letters to the specific attention of Chairman – present applicant.

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At this stage, I may make a reference to the judgment of learned Single Judge of this Court in Yashomala Engineering Pvt. Ltd.’s case (supra). In that case, learned Single Judge of this Court was considering liability of petitioner nos. 2 and 3 who were respectively the Chairman and Managing Director of petitioner no.1Company. In Para 24, learned Single Judge held that the position of the Chairman in the light of provision of Section 141 of the said Act would not be very much different from that of Managing Director, and therefore, the Chairman of the Company can certainly be considered to be responsible to the company for the conduct of the business of the company.

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I will now consider the submissions of Mr.Gupte, learned

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senior counsel that the applicant is Non-Executive Chairman and he is not in charge of day-to-day affairs of the management of accused no.1-Company. The Annual Report for the Year 2009-2010 and the database of the Directors of the company listed at BSE shows that the applicant is Non-Executive Chairman. Mr. Gupte, learned senior counsel, in this regard relied upon the duties of the Chairman given in Wikipedia, the free encyclopedia. In Wikipedia, the NonExecutive Chairman’s duties are limited to the matters directly related to the board, such as :

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Chairing the meetings of the board.

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Organising and coordinating the board’s activities, such as by setting its annual agenda.

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Reviewing and evaluating the performance of the CEO and the other board members.

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In the present case, however, the position of the applicant in Para (1) of the above application is described as a Chairman of M/s. Dunlop India Limited. I have also prima-facie found that the applicant was actively involved in securing trade finance facilities from respondent no.1, and therefore, the description of the applicant as Non-Executive Chairman in Annual Report of accused no.1-

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Company for the Year-2009-2010 will not absolve the the applicant from the liability under Sections 138 read with Section 141 of the said Act.

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The Apex Court in National Small Industries Corp. Ltd.’s case (supra) after considering the provisions of Sections 141 and 138 of the said Act and after taking survey of the case law including decision of S.M.S.Pharmaceuticals Ltd.’s case (supra) regarding liabilities of the directors of the company laid down the following principles in Para 25 which are reproduced hereinbelow:

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(i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction.

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(ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company.

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(iii)Vicarious liability can be inferred against a

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company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make accused therein vicariously liable for offence committed by company along with averments in the petition containing that accused were incharge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with.

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(iv)Vicarious liability on the part of a person must be pleaded and proved and not inferred.

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(v)If accused is Managing Director or Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with.

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(vi)If accused is a Director or an Officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in complaint.

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(vii)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.

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If the present case is considered in the light of the above

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ratio of the Apex Court, then, I find that respondent no. 1/complainant has made specific averment against all the accused including the present applicant as per the requirement of Section 141 of the said Act. So far as the applicant is concerned, his involvement is prima-facie supported by letters dated 5^th October, 2007 and 29^th April, 2008 i.e. sanction letter and amended sanction letter which are annexed at Exhibt “B” collectively to the complaint. For the purpose of issuance of the process, the complaint is required to be read along with the annexures annexed thereto. Having perused the same, I am prima-facie satisfied about the involvement of the present applicant in securing trade finance facilities from respondent no.1, and therefore, I am not inclined to interfere in the aforesaid criminal application.

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I do not find merit in the submission of Mr. Gupte, learned counsel that the revisional court in separate revisions quashed the process as against accused nos. 11 to 14 who were the Directors of accused no.1-Company. Mr. Thakur, learned counsel, in this regard, has stated that respondent no.1 had challenged those orders in this Court and same are pending for admission. In any

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case, the position of those Directors and present applicant is different, inasmuch as, the applicant is shown to have been involved in securing trade finance facilities. Taking over all view of the matter, I find that learned Magistrate has rightly issued the process against the applicant and no case is made out for exercise of this Court’s jurisdiction under Section 482 of the Cr.P.C for quashing the process. The criminal application is, accordingly, dismissed.

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(RANJIT MORE, J.)

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Pawan Kumar Ruia v. Global Trade Finance Ltd. and Anr.

Case brief

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Pawan Kumar Ruia v. Global Trade Finance Ltd. and Anr.

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