Allowed

Assistant Commissioner Central Excise v. M/S Indian Magnetics

Himachal Pradesh HC11 Jul 2024CR.R/128/2018

Case brief

AI extract

What is this about?

High Court allowed revision petition holding discharge of the Managing Director erroneous as his office implies liability under Section 9-AA of the Central Excise Act. Court also rejected plea to quash proceedings due to loss of original documents, permitting secondary evidence under Indian Evidence Act. Petition remanded for fresh proceedings.

What did the court decide?

Order dated 18.09.2017 passed by Trial Court set aside; case remanded for fresh finding on commission of offence and further proceedings.

Assistant Commissioner Central Excise Vs… — Criminal Trial and Appeal | Himachal Pradesh HC (2024)

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Neutral Citation No. ( 2024:HHC:4944 )

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IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA

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Cr. Revision No.128 of 2018

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Reserved on: 01.07.2024 Date of Decision: 11.07.2024

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Assistant Commissioner Central Excise ....Appellant Versus M/s Indian Magnetics and ors. ....Respondents Coram Hon’ble Mr Justice Rakesh Kainthla, Judge. Whether approved for reporting? Yes

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For the Petitioner	:	Mr. Vijay Kumar Arora, Advocate with Ms. Lalita Sharma, Advocate.
For the Respondents	:	Mr. Ankush Dass Sood, Sr. Advocate, with Mr. Shobit Nanda, Advocate, for respondent No.2. Respondent No.1/Company is stated to have been liquidated.
		Respondents No.3 and 4 are proclaimed offenders.

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Rakesh Kainthla, Judge

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The petitioner has filed the present petition against the order dated 18.09.2017 passed by learned Judicial Magistrate First Class-VI (JMFC-VI), vide which respondent No.2 (accused before learned Trial Court) was discharged of the commission of offences punishable under Section 9(1) of the Central Excise Act and

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Sections 468 and 473 of IPC. (Parties shall hereinafter be referred to in the same manner as they were arrayed before the learned Trial Court for convenience).

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2. Briefly stated, the facts giving rise to the present petition are that the complainant filed a complaint before the learned Trial Court for the commission of an offence punishable under Section 9(1) of the Central Excise Act and Sections 420, 463, 464, 465, 466, 468, 471 and 473 of IPC. It was asserted that the accused M/s Indian Magnetic Limited was holding Central Excise License/Registration No.2/CHP-85/CHD-III/90 and was engaged in the manufacture of video magnetic tapes falling under subHeading 85.23 of the schedule annexed to the Central Excise Tariff Act, 1985. Satinder Kapoor was the Managing Director of the company. S. Mahadevan General Manager (Operations) and Ajay Dua, General Manager (Commercial) were looking after the dayto-day business of the Company and were responsible for the payment of the central excise duty leviable on the manufactured product at the time of its clearance. The Officers of the AntiEvasion Wing laid a Nakka at the Parwanoo Sale Tax Barrier and intercepted a tempo bearing registration No. DL-1L-4883 on 27.07.1992. The tempo was loaded with 130 corrugated boxes

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containing the goods, audio tapes and jumbo rolls, which were cleared from the factory of the accused. Baldev Singh, Driver, produced the documents, which showed that the goods receipt was not in the name of the consignee but was self-addressed. Baldev Singh stated that he had loaded 130 boxes in the tempo on 27.07.1992 in the factory premises for delivery at their godown. The tempo and the goods were taken to the Central Revenue Building, Sector 17-C, Chandigarh. Physical verification of the goods was carried out on 30.07.1992 in the presence of Sh. S. Mahadevan, General Manager (Operations). The examination revealed that boxes contained 1060 pancakes having 11130 cuts equivalent to 35198.625 square meters of unrecorded magnetic tapes as against 7036.562 square meters. A verification report was prepared, which was authenticated by S. Mahadevan and Baldev Singh. S. Mahadevan was asked to explain how the quantity represented by the number of cuts was far more than the quantity recorded in the statutory clearance documents and delivery challan. He was unable to provide any satisfactory explanation. He admitted that the excess quantity was manufactured by the assessee and was cleared without being accounted for in statutory records and payment of duty. The goods and tempo were seized. A

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seizure order was passed. The officers visited the assessee’s factory on 28.07.1992 and conducted the physical verification of the stock. No discrepancy was detected in the stock of polyester film. The record was closely scrutinized and it was found that the quality control grading sheets contained the details of the production and its grading. The details of the goods found marketable were sent to the Managing Director of the assessee stationed in Delhi. The notebook also contained the details of the goods, which were found marketable and sent by the quality control for dispatch. The figure of production recorded in the sheets and notebooks w.e.f. 11.12.1990 to 31.12.1991 and 04.06.1992 to 24.07.1992 were found to be 21.04, 638.368 square meters against the production figure recorded in the statutory record as 3462999.833 square meters. Thus, a suppressed production of 1758338.53597 square meters was detected. It was found that the assessee was only accounting for 46.12% of the total production. A show cause notice was issued to the assessee and a demand of ₹3,83,13,593.13 was confirmed. Penalties were imposed. The parties filed an appeal against the order of the collector before CEGAT. CEGAT set aside the order and remitted the matter to the adjudicating authority. The case was again adjudicated and the

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order was passed on 18.11.1999. The accused deliberately violated Central Excise Rules to evade central excise duty by suppressing production and making clandestine removal of goods. Hence, it was prayed that the present complaint be allowed and the accused be punished as per the law.

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Learned Trial Court recorded preliminary evidence and found sufficient reasons to summon the accused for the commission of an offence punishable under Section 9(1) of the Central Excise Act and Sections 468 and 473 of the Indian Penal Code. The accused No.2 appeared before the Court and rest of the accused were declared as proclaimed offenders. Pre-charge evidence was ordered to be led. The statement of one complainant’s witness was partly recorded on 23.03.2013 and his examination was deferred on the ground that the original record could not be procured and efforts were being made to procure the record. The pre-charge evidence was closed by the order of the Court on 28.06.2013.

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Learned Trial Court found sufficient reasons to frame the charges against the accused-Satinder Pal for the commission

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of offences punishable under Section 9(1) of the Central Excise Act and Sections 424, 464, 465 and 468 of IPC.

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The accused filed a revision against the order framing charge. The revision was allowed by the learned Additional Sessions Judge vide order dated 03.10.2015 and the matter was remitted to learned Judicial Magistrate First Class with a direction to re-hear both the parties and to pass an appropriate order.

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The learned Trial Court heard the parties and discharged the accused holding that the Director can be made criminally liable under Section 9(AA) of the Central Excise Act if he was in charge of and responsible for the conduct of the business. Such evidence was not led before the Court. Hence, he was discharged.

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Being aggrieved from the order passed by the learned Trial Court, the petitioner filed the present petition. It was asserted that the learned Trial Court misinterpreted the provisions of Section 9-AA of the Central Excise Act. The Managing Director of the Company is responsible for the omissions and commissions attributable to the employees. There was sufficient evidence on record to show the prima facie culpability of accused No.2 for the

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commission of the offence. Rajinder Saroj one of the employees of the Company had tendered his statement under Section 14 of the Central Excise Act that the gate passes/invoices were not issued on the direction of accused No.2. He used to convey the directions regarding the name and address of the party and the quantity of the scrap to be shown in the gate passes/invoices. This statement was not appreciated by the learned Trial Court. The evidence was sufficient for framing the charge; hence, it was prayed that the present petition be allowed and the order passed by the learned Trial Court be set aside.

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I have heard Mr. Vijay Kumar Arora and Ms. Lalita Sharma, learned counsel for the petitioner/complainant. Mr Ankush Dass Sood learned Senior Counsel assisted by Mr Sobhit Nanda, learned counsel for respondent No.2.

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Mr. Vijay Kumar Arora, learned counsel for the petitioner submitted that the learned Trial Court erred in discharging the accused. The Managing Director is liable by virtue of his position and there is no requirement to prove that he was in charge and responsible to the Company for its affairs; hence, he prayed that the present petition be allowed and the order passed

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by the learned Trial Court be set aside. He relied upon the judgments of the Hon’ble Supreme Court in Mainuddin Abdul Sattar Shaikh v. Vijay D. Salvi, (2015) 9 SCC 622: (2015) 4 SCC (Cri) 55: (2015) 4 SCC (Civ) 685: 2015 SCC OnLine SC 607 and National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal [(2010) 3 SCC 330: (2010) 1 SCC (Civ) 677 : (2010) 2 SCC (Cri) 1113] , in support of his submission.

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Mr Ankush Dass Sood, learned Senior Counsel for respondent No.2/accused supported the order passed by the learned Trial Court. He submitted that the Managing Director cannot be held liable by virtue of his position in the company. There must be some proof to show that he is in charge and responsible to the Company for its affairs. He relied upon the judgment of the Hon’ble Supreme Court in Castrol (India) Ltd. v. State of Karnataka, (2018) 17 SCC 275: (2019) 4 SCC (Cri) 182: 2017 SCC OnLine SC 1367 , in support of this submission. He further submitted that the original record has been destroyed in the absence of which, the accused cannot be prosecuted. Remanding the matter to the learned Trial Court will not serve any purpose because the accused would be deprived of his opportunity to cross-examine the witness. He relied upon the judgment of the

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Hon’ble Supreme Court in Sunil Mehta versus State of Gujarat, 2013 (9) SCC 209 . He further submitted that the Court has inherent power to quash the proceedings when its continuation would amount to abuse of the process of the Court, therefore, he prayed that the present petition be dismissed and the proceedings pending before the learned Trial Court be quashed in exercise of the inherent jurisdiction. He relied upon the judgment of the Hon’ble Supreme Court in Popular Muthaiya versus State, 2006 (7) SCC 296 , in support of this submission.

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I have given considerable thought to the submissions at the bar and have gone through the records carefully.

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Section 9-AA of the Central Excise Act reads as under:

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9-AA. Offences by companies . — (1) Where an offence under this Act has been committed by 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:

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Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act 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.

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(2) Notwithstanding anything contained in sub-section (1), where an 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.

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Explanation .—For the purposes of this section,—

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( a ) “Company” means any body corporate and includes a firm or other association of individuals; and

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( b ) “Director” in relation to a firm means a partner in the firm.]

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This provision was considered by Delhi High Court in T.

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R. Bhagat v. Director General of C. E., (2012) 12 GSTR 176: 2011 SCC OnLine Del 4110 : (2012) 170 Comp Cas 61 : (2012) 280 ELT 499 : (2012) 108 CLA (SN 2) 4 and it was held that this provision is para materia to Section 141 of the Negotiable Instruments Act and is to be interpreted in a similar manner, therefore, it is essential for the complainant to aver that the accused was in-charge of and responsible to the company for its affairs. It was observed:

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“9. The wording of section 9AA(1) of the Central Excise Act is exactly similar to section 141 of the Negotiable Instruments Act, which deals with the vicarious liability of a director or other person associated with the company for the offence under section 138 of the Negotiable Instruments Act committed by the company. The question of interpretation of section 141 of the Negotiable Instruments Act came up for consideration before a three-judge Bench of

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the Supreme Court in S. M. S. Pharmaceuticals Ltd. v. Neeta Bhalla [2005] 127 Comp Cas 563 (SC); (2005) 8 SCC 89 wherein upon consideration of a number of decisions of the apex court, the Supreme Court opined thus (page 573 of 127 Comp Cas) :

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"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 the 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 the business of the company at the time of the commission of an offence, who 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 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. 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

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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."

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10. In the matter of N. K. Wahi v. Shekhar Singh [2007] 137 Comp Cas 939 (SC); AIR 2007 SC 1454 , the Hon'ble Supreme Court while dealing with the vicarious liability under section 141 of the Negotiable Instruments Act observed thus (page 943 of 137 Comp Cas):

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"To launch a prosecution, therefore, against the alleged directors, there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegations 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 the 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."

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11. The legal position which emerges from the aforesaid is that in order to rope in a director of a company as accused of an offence under section 138 of the Negotiable Instruments Act vicariously with the aid of section 141 of the Negotiable Instruments Act, the complainant is not only required to make a specific allegation that the person concerned was the director of the company but he is also required to make

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specific allegation of the fact indicating as to how and in what manner the said director was in charge of and responsible for the conduct of business of the company. Since the language of section 9AA(1) of the Central Excise Act is exactly similar to section 141 of the Negotiable Instruments Act, the same principle of law would apply to the director of the company in order to hold him vicariously responsible for an offence committed by the company under section 9 of the Central Excise Act.”

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The learned Trial Court relied upon this judgment and

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held that in the absence of any proof that the accused was incharge and responsible to the Company for its affairs, he cannot be held liable by virtue of Section 9-AA of the Central Excise Act. This conclusion is unsustainable. It was laid down by the Hon’ble Supreme Court in National Small Industries Corpn. Ltd. (supra), that the Managing Director is responsible by virtue of his position in the Company and there is no requirement to mention that he was in-charge and responsible to the Company for its affairs. It was observed:

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“20. Section 141 of the Act has been interpreted by this Court in various decisions. As to the scope of Section 141 of the Act, a three-judge Bench of this Court considered the following questions which had been referred to it by a twojudge Bench of this Court in S.M.S. Pharmaceuticals Ltd. (1) v. Neeta Bhalla [(2005) 8 SCC 89: 2005 SCC (Cri) 1975] : (SCC pp. 93-94, para 1)

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“( a ) Whether for purposes of Section 141 of the Negotiable Instruments Act, 1881, it is sufficient if the substance of the allegation read as a whole fulfil the

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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.

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( b ) Whether a Director of a company would be deemed to be in charge of, and responsible to, the company for the conduct of the business of the company and, therefore, deemed to be guilty of the offence unless he proves to the contrary.

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( 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 the conduct of its business could be proceeded against.”

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21. While considering the above questions, this Court held as under: (S.M.S. Pharmaceuticals Ltd. (1) case [(2005) 8 SCC 89: 2005 SCC (Cri) 1975] , SCC pp. 102-03, paras 18-19)

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“ 18 . To sum up, there is an almost unanimous judicial opinion that necessary averments ought to be contained in a complaint before a person can be subjected to criminal process. A liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable. Section 141 of the Act contains the requirements for making a person liable under the said provision. That the respondent falls within the parameters of Section 141 has to be spelled out. A complaint has to be examined by the Magistrate in the first instance on the basis of averments contained therein. If the Magistrate is satisfied that there are averments which bring the case within Section 141, he would issue the process. We have seen that merely

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being described as a Director in a company is not sufficient to satisfy the requirement of Section 141. Even a non-director can be liable under Section 141 of the Act. The averments in the complaint would also serve the purpose that the person sought to be made liable would know what is the case which is alleged against him. This will enable him to meet the case at the trial.

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19 . In view of the above discussion, our answers to the questions posed in the reference are 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.

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( b ) The answer to the question posed in subpara ( 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 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.

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( 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, holders of such

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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 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.”

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22. Therefore, this Court has distinguished the case of persons who are in charge of and responsible for the conduct of the business of the company at the time of the offence and the persons who are merely holding the post in a company and are not in charge of and responsible for the conduct of the business of the company. Further, in order to fasten the vicarious liability in accordance with Section 141, the averment as to the role of the Directors concerned should be specific. The description should be clear and there should be some unambiguous allegations as to how the Directors concerned were alleged to be in charge of and were responsible for the conduct and affairs of the company.

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36. Section 291 of the Companies Act, 1956 provides that “291. General powers of the Board .—(1) Subject to the provisions of [that] Act, the Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do:”

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A company, though a legal entity, can act only through its Board of Directors. The settled position is that a Managing Director is prima facie in charge of and responsible for the company's business and affairs and can be prosecuted for offences by the company. But insofar as other Directors are

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concerned, they can be prosecuted only if they were in charge of and responsible for the conduct of the business of the company.

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37. A combined reading of Sections 5 and 291 of the Companies Act, 1956 with the definitions in clauses (24), (26), (30), (31) and (45) of Section 2 of that Act would show that the following persons are considered to be the persons who are responsible to the company for the conduct of the business of the company:

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( a ) the Managing Director(s);

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( b ) the whole-time Director(s);

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( c ) the Manager;

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( d ) the Secretary;

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( e ) any person in accordance with whose directions or instructions the Board of Directors of the company is accustomed to act;

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( f ) any person charged by the Board of Directors with the responsibility of complying with that provision:

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Provided that the person so charged has given his consent in this behalf to the Board;

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( g ) where any company does not have any of the officers specified in Clauses ( a ) to ( c ), any Director or Directors who may be specified by the Board in this behalf or where no Director is so specified, all the Directors:

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Provided that where the Board exercises any power under Clause ( f ) or Clause ( g ), it shall, within thirty days of the exercise of such powers, file with the Registrar a return in the prescribed form.

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38. But if the accused is not one of the persons who falls under the category of “persons who are responsible to the company for the conduct of the business of the company” then merely by stating that “he was in charge of the business of the company” or by stating that “he was in charge of the day-to-day management of the company” or

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by stating that “he was in charge of, and was responsible to the company for the conduct of the business of the company”, he cannot be made vicariously liable under Section 141(1) of the Act. To put it clear that for making a person liable under Section 141(2), the mechanical repetition of the requirements under Section 141(1) will be of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and connivance or negligence and therefore, responsible under sub-section (2) of Section 141 of the Act.”

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A similar view was taken in Mainuddin Abdul Sattar

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Shaikh (supra) , wherein it was held:

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“12. The respondent has adduced the argument that in the complaint the appellant has not taken the averment that the accused was the person in charge of and responsible for the affairs of the Company. However, as the respondent was the Managing Director of M/s Salvi Infrastructure (P) Ltd. and sole proprietor of M/s Salvi Builders and Developers, there is no need of a specific averment on the point. This Court has held in National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal [(2010) 3 SCC 330: (2010) 1 SCC (Civ) 677 : (2010) 2 SCC (Cri) 1113] , as follows : (SCC p. 346, para 39)

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“ 39 . ( v ) If the accused is a Managing Director or a 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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13. Thus, in the light of the position which the respondent in the present case held, we are of the view that the respondent be made liable under Section 138 of the NI Act, even though the Company had not been named in the notice or the complaint. There was no necessity for the appellant to prove that the said respondent was in charge of the affairs of the Company, by virtue of the position he held. Thus, we hold

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that the respondent Vijay D. Salvi is liable for the offence under Section 138 of the NI Act.”

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It was submitted that the Hon’ble Supreme Court had

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subsequently taken a view in Castrol India Limited (supra) , that it is necessary to aver and prove that the Managing Director was responsible to the Company for its affairs in the absence of which he cannot be held liable. Reliance was placed upon the following paragraphs:

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“7. In the present complaint petition, there is no averment or statement whatsoever that the appellant as the Managing Director of the Company was responsible or in charge of the conduct of the business of the Company in respect of which the offence in question has been alleged to have been committed. Neither is there any averment to the effect that the appellant is otherwise connected or responsible for the commission of any of the acts on the basis of which the offence(s) is alleged to have been committed.

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8. It will not be necessary to burden this order by a detailed reference to numerous pronouncements of this Court interpreting similar provisions of other statutes holding that a clear and categorical statement to the above effect is required to be made in the complaint petition to proceed against an officer of the Company so as to determine his vicarious liability for the offence committed by the Company. In the present case, the Company is not even arrayed as an accused.”

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It is apparent from the judgment that the Hon’ble

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Supreme Court had not referred to the previous judgments, especially SMS Pharmaceuticals (supra), which considered the liability of the Managing Director. This judgment was considered

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in Sunita Palita v. Panchami Stone Quarry , (2022) 10 SCC 152 : (2023) 1 SCC (Cri) 91 : (2023) 1 SCC (Civ) 612: 2022 SCC OnLine SC 945 , and it was held that Managing Director or Joint Managing Director would admittedly be in charge of the Company and responsible for the conduct for its business by virtue of their office and it is not necessary to make a specific averment to this effect. It was observed:

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“27. In K.K. Ahuja v. V.K. Vora [K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48 : (2009) 4 SCC (Civ) 1 : (2010) 2 SCC (Cri) 1181] this Court discussed the principles of the vicarious liability of the officers of a company in respect of dishonour of a cheque and held : (SCC pp. 61-62, para 27)

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“ 27 . The position under Section 141 of the Act can be summarised thus:

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( 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.

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( 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

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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.

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( 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.

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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.”

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29. As held in K.K. Ahuja v. V.K. Vora [K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48 : (2009) 4 SCC (Civ) 1 : (2010) 2 SCC (Cri) 1181] when the accused is the Managing Director or a Joint Managing Director of a company, 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. This is because the prefix “Managing” to the word “Director” makes it clear that the

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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.

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36. 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 Managing 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 Sections 138/141 of the NI Act.

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42. 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 [S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89: 2005 SCC (Cri) 1975] . 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 [Pooja Ravinder Devidasani v. State of Maharashtra, (2014) 16 SCC 1 : (2015) 3 SCC (Civ) 384 : (2015) 3 SCC (Cri) 378] a non-executive Director is not involved in the day-to-day affairs of the company or the running of its business. Such a 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

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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.”

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A similar view was taken in P. Mani & Mohan Dairy v. Snehalatha Elangovan , (2023) 10 SCC 685: (2024) 1 SCC (Cri) 203: 2022 SCC OnLine SC 1238 , wherein it was observed:

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“47. At this stage, we should look into the decision of this Court in K.K. Ahuja v. V.K. Vora [K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48 : (2009) 4 SCC (Civ) 1 : (2010) 2 SCC (Cri) 1181] , wherein this Court discussed the principles of vicarious liability of the officers of a company in respect of dishonour of a cheque and held : (SCC pp. 61-62, para 27)

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“ 27 . The position under Section 141 of the Act can be summarised thus:

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( 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 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.

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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.

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( 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 .

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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.”

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(emphasis supplied)

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48. In a very recent pronouncement in Sunita Palita v. Panchami Stone Quarry [Sunita Palita v. Panchami Stone Quarry, (2022) 10 SCC 152 : (2023) 1 SCC (Civ) 612 : (2023) 1 SCC (Cri) 91] , this Court, after referring to K.K. Ahuja [K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48 : (2009) 4 SCC (Civ) 1 : (2010) 2 SCC (Cri) 1181] referred to above, observed as under : ( Sunita Palita case [Sunita Palita v. Panchami Stone Quarry, (2022) 10 SCC 152 : (2023) 1 SCC (Civ) 612 : (2023) 1 SCC (Cri) 91 ], SCC pp. 164-65, para 29)

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“ 29 . … when the accused is the Managing Director or a Joint Managing Director of a company, 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. 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.”

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This position was reiterated in Susela Padmavathy

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Amma v. Bharti Airtel Ltd., 2024 SCC OnLine SC 311, wherein it was

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observed:

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“20. In the case of S.M.S. Pharmaceuticals Ltd . (supra), this Court was considering the question as to whether it was sufficient to make the person liable for being a director of a company under Section 141 of the Negotiable Instruments Act, 1881. This Court considered the definition of the word “director” as defined in Section 2(13) of the Companies Act, 1956. This Court observed thus:

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“ 8. ……. There is nothing which suggests that simply by being a director in a company, one is supposed to discharge particular functions on behalf of a company. It happens that a person may be a director in a company but he may not know anything about the day-to-day functioning of the company. As a director, he may be attending meetings of the Board of Directors of the company where usually they decide policy matters and guide the course of business of a company. It may be that a Board of Directors may

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appoint sub-committees consisting of one or two directors out of the Board of the company who may be made responsible for the day-to-day functions of the company. These are matters which form part of resolutions of the Board of Directors of a company. Nothing is oral. What emerges from this is that the role of a director in a company is a question of fact depending on the peculiar facts in each case. There is no universal rule that a director of a company is in charge of its everyday affairs. We have discussed about the position of a director in a company in order to illustrate the point that there is no magic as such in a particular word, be it director, manager or secretary. It all depends upon the respective roles assigned to the officers in a company. …..”

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21. It was held that merely because a person is a director of a company, it is not necessary that he is aware about the daytoday functioning of the company. This Court held that there is no universal rule that a director of a company is in charge of its everyday affairs. It was, therefore, necessary, to aver as to how the director of the company was in charge of the day-to-day affairs of the company or responsible to the affairs of the company. This Court, however, clarified that the position of a managing director or a joint managing director in a company may be different. This Court further held that these persons, as the designation of their office suggests, are in charge of a company and are responsible for the conduct of the business of the company. To escape liability, they will have to prove that when the offence was committed, they had no knowledge of the offence or that they exercised all due diligence to prevent the commission of the offence.”

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Thus, the Hon’ble Supreme Court had subsequently

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reiterated the position laid down in SMS Pharmaceuticals (supra)

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that in the case of the Managing Director, it is not necessary to specifically aver and prove that he was in charge and responsible

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to the Company for its affairs. This fact would be assumed by the position, which he holds and the burden would be upon him to prove the contrary.

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Mr. Ankush Dass Sood, learned Senior Counsel for respondent No.2/accused submitted that the Managing Director cannot be held liable merely by virtue of his position because he does not have any control over all the employees and there is a possibility that he can be falsely implicated by the employees in connivance with the rivals of the Company. This submission is not acceptable. Proviso to Section 9-AA reads that a person is not liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised due diligence to prevent the commission of the offence. Therefore, an innocent Managing Director can always establish before the Court that the offence was committed without his knowledge or that he had exercised due diligence to prevent the commission of such offence. Hence, the apprehension expressed by Mr Ankush Dass Sood that the Managing Director can be held liable, even when he had no fault or at the instance of his rival has been adequately taken care of by the Legislature.

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It was submitted that the original record had been lost. Reference was made to an application filed seeking direction to the complainant to produce the record. The complainant filed a reply stating that the original record is not available with the complainant being an old record, however, the certified copies of the record are available in the file of learned JMFC-VI, Shimla. It was submitted that the accused had a right to cross-examine the witnesses and denial of this right amounts to denial of fair opportunity. Reliance was placed upon the judgment of the Hon’ble Supreme Court in Sunil Mehta versus State of Gujarat, 2013 (9) SCC 209 in support of this submission.

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The submission that the accused had a right to crossexamine the witnesses cannot be denied.

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Chapter V of the Indian Evidence Act deals with documentary evidence. Section 61 provides that the contents of the document may be proved either by primary or secondary evidence. Section 62 provides that the primary evidence means the document itself produced for the inspection of the Court. Section 63 defines the secondary evidence. Section 64 provides that the document must be proved by primary evidence accepting the cases

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mentioned thereafter. Section 65 deals with the cases when the secondary evidence of the documents can be given. Section 65 (c) deals with a situation when the original has been destroyed or lost or when the parties offering it or its contents cannot for any other reason not arising from his default or neglect produce it in a reasonable time. Hence, the Legislature has taken care of a situation, when the original is lost by providing that secondary evidence of the document can be led.

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Mr. Ankush Dass Sood, learned Senior Counsel submitted that the secondary evidence cannot be led in a criminal case. This submission is only stated to be rejected. Rules of evidence are the same for civil and criminal cases except for some provisions like confession made to the police officer, which is peculiar to criminal cases and estoppel, which is peculiar to civil cases.

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Section 1 of the Indian Evidence Act provides that the Act applies to all judicial proceedings in or before any Court. The term ‘Court’ has been defined in Section 3 as including all Judges and Magistrates and all persons legally authorized to take evidence. Since a Magistrate is legally authorized to take evidence,

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therefore, the provisions of the Indian Evidence Act will apply to him and it is difficult to accept the submission that the provisions of secondary evidence does not apply to the criminal proceedings.

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Therefore, the submission that the proceedings are liable to be quashed because the original documents have been lost cannot be accepted. The proceedings cannot be terminated for want of primary evidence because the Evidence Act permits the reception of secondary evidence when the primary evidence is not available and there will be no denial of right of cross-examination.

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The learned Trial Court had discharged the accused simply on the ground that it was not proved that he was in charge and responsible for the Company for its affairs, which is not a legal requirement as noticed above. Therefore, the order passed by the learned Trial Court cannot be sustained.

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Consequently, the present petition is allowed and the order dated 18.09.2017 passed by the learned Trial Court is ordered to be set aside. Since no finding has been given on the fact whether the offence punishable under Section 9(1) of the Central Excise Act is attracted or not, therefore, the learned Trial Court shall record a

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fresh finding regarding this fact and will proceed further as per

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the law.

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