Allowed

Rudrapathi Raju Rajesh v. M/S Sunara Paper Agencies

Karnataka HC14 Sept 2023CRL.P/100254/2023

Case brief

AI extract

What is this about?

In a criminal petition under Section 482 Cr.P.C. seeking to quash Section 138 NI Act proceedings against a director, the Karnataka High Court relied on the Supreme Court in Ashok Shewakramani to hold that the complaint failed to aver the director was in charge for the company's business. Consequently, the proceedings were quashed.

What did the court decide?

The criminal petition was allowed and the proceedings in CC No. 1789/2022 were quashed against the petitioner.

Rudrapathi Raju Rajesh Vs M/S Sunara Paper Agencies — Cheque Dishonour | Karnataka HC (2023)

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NC: 2023:KHC-D:10639 CRL.P No. 100254 of 2023

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IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH

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DATED THIS THE 14^TH DAY OF SEPTEMBER, 2023 BEFORE

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THE HON'BLE MR JUSTICE M.NAGAPRASANNA

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CRIMINAL PETITION NO. 100254 OF 2023

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BETWEEN:

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RUDRAPATHI RAJU RAJESH S/O RAJU RUDRAPATHI PAUL, AGE. 47 YEARS, OCC. BUSINESS, R/O. 147 BAILPAR DANDELI, DIST. UTTAR KANNADA(KARWAR).

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… PETITIONER

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(BY SRI. SRINIVAS .B. NAIK, ADVOCATE)

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AND:

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M/S SUNARA PAPER AGENCIES, R/BY ITS PROPRIETOR, SHARAD .S. RAJPUROHIT, SUNARA NO 65/10 MUKAMBIKA NAGAR, BELAGAM ROAD, DHARWAD.

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… RESPONDENT

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VIJAYALAKSHMI M KANKUPPI Digitally signed by VIJAYALAKSHMI M KANKUPPI Date: 2023.11.04 13:38:43 +0530

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(BY SRI. A.G. HIREMATH, ADVOCATE)

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THIS CRIMINAL PETITION IS FILED U/SEC. 482 OF CR.P.C. SEEKING TO QUASH THE ENTIRE PROCEEDINGS IN CC NO. 1789/2022 ON THE FILE OF PRINCIPAL CIVIL JUDGE AND JMFC DHARWAD FOR THE OFFENCE PUNISHABLE U/S 138 OF NI ACT, IN SO FAR AS PETITIONER IS CONCERNED.

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THIS PETITION, COMING ON FOR ADMISSION, THIS DAY, THE COURT MADE THE FOLLOWING:

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ORDER

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The petitioner is before this Court calling in

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question the proceedings in CC.No.1789/2022, registered for the offence punishable under Section 138 of N.I.Act.

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Heard Sri.Srinivas B Naik, Learned counsel for

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the petitioner; Sri.A.G.Hiremath, learned counsel for respondent.

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Facts in brief germane are as follows:

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The petitioner is accused No.4, who is said to be the director of Sreenidhi Private Limited. Sreenidhi Private Limited (the ‘Company’ for short) and the respondent have had several transactions, one such transaction goes wrong, this results in the complainant instituting proceedings under Section 138 of Negotiable Instrument Act (Act for short) by invoking Section 200 of Cr.P.C.

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The learned Magistrate takes cognizance of the offence and issues summons to the accused. The accused

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No.4 is the present petitioner. He is described as director of Sreenidhi Papers Private Limited. The issuance of the summons, what drives the petitioner in the subject petition.

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Learned counsel Sri.Srinivas B Naik appearing

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for the petitioner would submit that necessary requirement in a complaint, is narration about the role of each of the accused. Insofar as the petitioner is concerned, it his submission that, no averments that would become an offence under Section 138 of the Act.

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Learned counsel for the respondent-

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complainant would take this court through the provisions of the Act of the particular reference to Section 141 of the Act to contend that mere presence of a director at the time when the cheque was issued is enough for him to be hauled into the proceedings. He would therefore seek dismissal of the petition.

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The aforenarrated facts are not in dispute. The instrument that becomes the subject matter of the transaction before the concerned court is a cheque issued in favour of the company. The signatory to the cheque is accused No.1. The petitioner is arrayed as a director of the company, who was holding the post at the time when the cheque was issued. A perusal at the complaint filed under Section 200 of Cr.P.C. does not indicate the complete role of the petitioner-accused No.4. What is averred in the complaint qua the petitioner is as follows:

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“4. It is submitted That, the Accused no 1 is a Private limited company. You Party No 2 3 and 4are Directors of accused No 1 and 2 are authorized signatory of accused No 1 Company And You accused No 1 to 3 have made an Business Agreement Dated 18/11/2021 with the complainant for supply of KRAFT WASTE PAPERS (Raw Materials) negotiated and purchased materials from the complainant.

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5. It is submitted That That, the complainant supplied the materials i.e., KRAFT WASTE PAPERS

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(Raw Material) to accused as per the requirement for production from Time to time Through various Invoices as per the agreement and regularly maintained the account by the complainant in day to day transations, you have accepted our Consignments from the complainant through your GRN (Goods receipt Note)

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6. It is submitted that the accused were due to pay an amount of Rs. 1,11,39,130/- to the complainant as per statement of account maintained by my complainant in regular course of business.

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7. It is submitted that Thereafter, the complainant requested you all number of times to release the overdue account balance but the accused have postponed the balance payment for one or other reasons.

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8. It is submitted that Finally For the payment of these dues you accused No 2, being authorized signatory of accused No 1 issued a Cheque for Rs. 51,70,895/- (Fifty one lakh and seventy thousand eight hundred ninty five Rupees only) Drawn on THE KANARA DISTRICT CENTRAL CO-OP BANK LTD., DANDELI BRANCH) through Ch No 015128 Dt. 12.12.2021 towards part payment and assured our complainant that accused will make remaining payment in coming month.

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9. It is submitted that And all the accused requested complainant to not to present for payment on account of your personal difficulty like

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workers are on strike, and not coming for works and also by giving many excuses. The complainant for maintaining business and looking into commercial relationship with accused obliged their request" and not presented Above said cheque for collection on Cheque dates.

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10. It is submitted that After that, complainant requested the accused persons a number of times over telephone to liquidate the credit account balance. The accused least bothered to the request of complainant, and the complainant visited your unit number of times and but you were not available as accused have stopped taking to complainant’s telephone calls and not responded his request for payment via e mail also.

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11. xxxxxxxx

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12. xxxxxxxx

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13. It is submitted that That, Finally the accused have assured the complainant that payment will be cleared if presented again, again the complainant has presented the Cheque for collection through Canara Bank, Main Branch Dharwad, On Dt. 09/02/2022,for a sum of Rs.51,70,895/, To the surprise of complainant, the said Cheque returned unpaid with endorsement of Canara Bank, as "FUNDS INSUFFICIENT dated 10/02/2022. The said Cheque is returned to my client along with Cheque

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return memo as "Funds Insufficient" dated 11/02/2022 of Canara Bank, Main Branch Dharwad.

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14. It is submitted that Cheque Has returned as there was Insufficient Balance in the account. It shows that accused No, 1 and 2 and 3 are Intentionally and Deliberately with Intention to Dupe the complainant, accused have not maintained Sufficient balance amount in their account to hon'our the Cheque, which was legally recoverable debt from the accused.

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15. It is submitted that Thereby accused No 1 and 2 and 3 have cheated and committed offence under section 138 of Negotiable Act and under section 420 IPC Hence Punishable under section 138 of NI act and under section 420 of IPC.

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Barring this there is no other indication of the

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role of the petitioner, while there is some indication about the accused Nos.1, 2 and 3. There is no mention of accused No.4 anywhere in the complaint, without there being any role of a director like the petitioner, whether proceedings under Section 138 of N.I Act should be permitted to be continued is no longer res integra. The Apex Court in the case of ASHOK SHEWAKRAMANI &

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ORS VS. THE STATE OF ANDHRA PRADESH & ANR

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reported in 2023 SCC online SC 958 has held as

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follows”

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“15. The facts leading to the filing of these three appeals are identical. The prayer made by the appellants under Section 482 of the Code of Criminal Procedure, 1973 for quashing the complaint filed by the second respondent has been rejected by the High Court by the impugned judgment [Ashok Shewakramani v. State of A.P., 2017 SCC OnLine Hyd 900] . The present appellants have been arrayed as Accused 5 to 7 in the complaint filed by the second respondent under Section 138 of the NI Act. Accused 1 in the complaint is a limited Company. Accused 2 is the Chairman of the Company, and Accused 3 is the Managing Director of the Company. Accused 5 to 7 have been described as Directors of Accused 1 Company. The only issue which we are called upon to decide is whether the second respondent has incorporated the averments which are necessary to be incorporated in a complaint under Section 138 of the NI Act in view of sub-section (1) of Section 141 of the NI Act. The averments made in the complaints which are the subject-matter of these three appeals are identical. We are referring to the averments made in one of the three complaints (in Complaint Case No. 74 of 2011) in Para 1:

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“(1) It is submitted that the complainant is the proprietor of Sri Chakra Cotton Traders, doing business in cotton, resident of bearing Door No. 3/917-I, Sri Chackra

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Nilayam, YMR Colony, Proddatur Town-516 360, Kadapa District, A.P.

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The Accused 1 is the private limited Company concerned and registered under the Companies Act. Accused 2 is Chairman of Accused 1. Accused 3 is the Managing Director of Accused 2 and Accused 4 to 7 are the Directors of Accused 1 Company and Accused 2 to 7 are managing the Company and busy with day-to-day affairs of the Company and all are managing the Company and also in charge of the Company and all are jointly and severally liable for the acts of Accused 1 Company.”

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16. The learned counsel appearing for the appellants has relied upon various decisions of this Court in support of his plea that the material averments which are required to be incorporated in terms of sub-section (1) of Section 141 of the NI Act are completely lacking in these cases. He mainly relied upon a decision of this Court in Ashoke Mal Bafna v. Upper India Steel Mfg. & Engg. Co. Ltd. [Ashoke Mal Bafna v. Upper India Steel Mfg. & Engg. Co. Ltd., (2018) 14 SCC 202 : (2018) 4 SCC (Civ) 515 : (2019) 1 SCC (Cri) 568] He would submit that for attracting vicarious liability under sub-section (1) of Section 141 of the NI Act, it is mandatory to make averments as specified therein.

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17. The learned counsel appearing for the second respondent complainant firstly relied upon a decision of this Court in S.P. Mani & Mohan Dairy v. Snehalatha Elangovan [S.P. Mani & Mohan Dairy v. Snehalatha

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Elangovan, (2023) 10 SCC 685 : 2022 SCC OnLine SC 1238] and especially what is held in the concluding part of the said judgment in para 58. He also placed reliance on various decisions which were considered by the High Court while rejecting the prayer made by the appellants under Section 482 of the Code for quashing the complaints.

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18. After having considered the submissions, we are of the view that there is non-compliance on the part of the second respondent with the requirements of sub-section (1) of Section 141 of the NI Act. We may note here that we are dealing with the appellants who have been alleged to be the Directors of Accused 1 Company. We are not dealing with the cases of a Managing Director or a wholetime Director. The appellants Have not signed the cheques. In the facts of these three cases, the cheques have been signed by the Managing Director and not by any of the appellants.

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19. Section 141 is an exception to the normal rule that there cannot be any vicarious liability when it comes to a penal provision. The vicarious liability is attracted when the ingredients of sub-section (1) of Section 141 are satisfied. The section provides that every person who at the time the offence was committed was in charge of, and was responsible to the Company for the conduct of business of the Company, as well as the Company shall be deemed to be guilty of the offence under Section 138 of the NI Act. In the light of sub-section 1 of Section 141 are satisfied. The Section provides that every person who

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at the time the offence was committed was in charge of, and was responsible to the Company for the conduct of business of the company, as well as the company shall be deemed to be guilty of the offence under Section 138 of the NI Act. In the light of sub-section 1 of Section 141, we have perused the averments made in the complaints subject matter of these three appeals. The allegation in paragraph 1 of the complaints is that the appellants are managing the company and are busy with day to day affairs of the company. It is further averred that they are also in charge of the company and are jointly and severally liable for the acts of the accused No. 1 company. The requirement of sub-section 1 of Section 141 of the NI Act is something different and higher. Every person who is sought to be roped in by virtue of subsection 1 of Section 141 NI Act must be a 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. Merely because somebody is managing the affairs of the company, per se, he does not become in charge of the conduct of the business of the company or the person responsible for the company for the conduct of the business of the company. For example, in a given case, a manager of a company may be managing the business of the company. Only on the ground that he is managing the business of the company, he cannot be roped in based on sub-section 1 of Section 141 of the NI Act. The second allegation in the complaint is that the appellants are busy with the day-to-day affairs of the company. This is hardly relevant in the context of subsection 1 of Section 141 of the NI Act. The allegation

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that they are in charge of the company is neither here nor there and by no stretch of the imagination, on the basis of such averment, one cannot conclude that the allegation of the second respondent is that the appellants were also responsible to the company for the conduct of the business. Only by saying that a person was in charge of the company at the time when the offence was committed is not sufficient to attract sub-section 1 of Section 141 of the NI Act. Sub- section 1 of Section 141 reads thus:

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"141. Offences by companies.- (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deeded to be quilty 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 person liable to punishment if he proves that the offence was

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committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:

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[Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as

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the case may be, he shall not be liable for prosecution under this Chapter.]"

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20. On a plain reading, it is apparent that the words "was in charge or" and "was responsible to the company for the conduct of the business of the company" cannot be read disjunctively and the same ought be read conjunctively in view of use of the word "and" in between.

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21. Therefore, even by giving a liberal construction to what is averred in paragraph 1 of the complaints, we are unable to accept the submission made by the learned counsel appearing for the second respondent that these averments substantially comply with sub-section (1) of Section 141 of the NI Act.

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The Apex Court considers the necessity of averments to be made in a complaint to drag in the person/office bearer of the company in a proceedings under Section 138 of N.I.Act. If the law laid down by the Apex Court is considered, qua the facts obtaining in the case at hand, the proceedings against the petitioner cannot be permitted to be continued. If permitted, would become an abuse of process of law and miscarriage of justice.

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