Allowed

Mr Tilak Raj Bajalia v. M/S Oswal Minerals Limited

Karnataka HC8 Jun 2023CRL.P/3186/2021

Case brief

AI extract

What is this about?

The High Court of Karnataka allowed a criminal petition seeking quashing of proceedings under Section 138 NI Act against independent non-executive directors. The court held that such directors are not liable without specific averments of responsibility in pleadings, ruling the continued proceedings an abuse of process.

What did the court decide?

Proceedings in C.C.No.5389/2020 stand quashed, qua the petitioners, as independent non-executive directors cannot be held liable absent specific averments of their responsibility in the pleadings.

Mr Tilak Raj Bajalia Vs M/S Oswal Minerals Limited — Cheque Dishonour | Karnataka HC (2023)

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1 - NC: 2023:KHC:19646 CRL.P No. 3186 of 2021

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 8^TH DAY OF JUNE, 2023

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BEFORE

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THE HON'BLE MR JUSTICE M.NAGAPRASANNA CRIMINAL PETITION NO. 3186 OF 2021

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BETWEEN:

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MR. TILAK RAJ BAJALIA AGED ABOUT 55 YEARS M/S ISINOX LIMITED B-1602, GUNDECHA ALTURU LBS MARG XAVIERS SCHOOL KANJURMARG (WEST) BHAND UP (WEST) MUMBAI – 400 078. MH IN

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CORRECT DESIGNATION: MR. TILAK RAJ BAJALIA FORMER INDEPENDENT DIRECTOR M/S. ISINOX LIMITED.

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Digitally signed by PADMAVATHI B K Location: HIGH COURT OF KARNATAKA

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SRI. BIMAL RAMANLAL DESAI THE DIRECTOR / AUTHORIZED SIGNATORY OF M/S. ISINOX LIMITED M/S. INDIA STEEL WORKS LIMITED B/902 JAY PRABHAT CHS SAHAKAR NAGAR, J.P.ROAD AZAD NAGAR, ANDHERI WEST MUMBAI - 400 053. MH IN

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CORRECT DESIGNATION: SRI BIMAL RAMANLAL DESAI NON EXECUTIVE DIRECTOR M/S. INDIA STEEL WORKS LIMITED.

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NC: 2023:KHC:19646 CRL.P No. 3186 of 2021

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SMT. DIPTI ATISH VARTAK THE DIRECTOR / AUTHORIZED SIGNATORY M/S. ISINOX LIMITED AND M/S. INDIA STEEL WORKS LIMITED ’A’ 701, ASTER, RAJHANS KSHITIJ SUYOG NAGAR VASAI WEST VASAI - 400 202 MH IN

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CORRECT DESIGNATION:

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SMT. DIPTI ATISH VARTAK FORMER COMPANY SECRETARY M/S. INDIA STEEL WORKS LIMITED

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SMT. RIDDHI DIPAK KUMAR SHAH THE DIRECTOR / AUTHORIZED SIGNATORY M/S. ISINOX LIMITED AND M/S. INDIA STEEL WORKS LIMITED C-702, GORAI SHREE DAR SHAN, C.H.S PLOT NO.21, GORIA 1 NEAR SISTER NIVEDITA SCHOOL BORIVALLI WEST, MUMBAI BORIVA MUMBAI - 400 092, MH IN

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CORRECT DESIGNATION:

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SMT. RIDDHI DIPAK KUMAR SHAH INDEPENDENT DIRECTOR M/S. INDIA STEEL WORKS LIMITED

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SMT. KAVITA JOSHI RAJU THE DIRECTOR OF M/S ISINOX LIMTIED AND M/S INDIA STEEL WORKS LIMITED C-403, PANCHDHAM CHS LIMITED C.S.ROAD, ANAND NAGAR

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NC: 2023:KHC:19646 CRL.P No. 3186 of 2021

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DAHISAR EAST

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MUMBAI - 400 068 MH IN

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CORRECT DESIGNATION AND ADDRESS:

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FORMER INDEPENDENT DIRECTOR OF M/S. ISINOX LIMITED.

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M/S. INDIA STEEL WORKS LIMITED INDIA STEEL WORKS COMPLEX NEAR ZENITH COMPUND KHOPOLI – 410 203 MAHARASTRA INDIA REP. BY ITS MANAGING DIRECTOR MR. SUDHIR HARBANSLAL GUPTA

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CORRECT DESIGNATION:

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M/S INDIA STEEL WORKS LIMITED REP. BY ITS COMPANY SECRETARY MR. DILIP KUMAR MAHARANA

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…PETITIONERS

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(BY SRI. RAGHURAM CADAMBI, ADVOCATE)

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AND:

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M/S. OSWAL MINERALS LIMITED REGD OFFICE AT NO.8/11 POLICE STATION ROAD PALLAVARAM CHENNAI - 600 043. AND CORPORATE OFFICE AT OSWAL ‘S’ NO.1034/19, 2^ND FLOOR DR. RAJ KUMAR ROAD 1^ST MAIN, 4^TH BOCK, RAJAJINAGAR BENGALURU - 560 001 AND,

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BRANCH OFFICE AT: PLOT NO. E-59 MIDC SHIROLI, KOLHAPUR MAHARASHTRA - 416 122 REP. BY ITS AUTHORIZED SIGNATORY MR. K.ANAND KUMAR S/O LATE KRISHNAMURTHY AGED ABOUT 47 YEARS

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…RESPONDENT

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(BY SRI. KIRAN S., ADVOCATE)

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THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 OF CR.P.C., PRAYING TO SET ASIDE THE IMPUGNED ORDER OF TAKING COGNIZANCE IN P.C.R.NO.15259/2020 DATED 04.03.2020 AND REGISTERING A CRIMINAL CASE FOR THE OFFENCE P/U/S 138 OF N.I. ACT IN C.C.NO.5389/2020 PENDING ON THE FILE OF XXVII ADDL.C.M.M., BENGALURU IN RESPECT OF THE PETITIONERS AND ALLOW THIS CRL.P.

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

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ORDER

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The petitioners are before this Court calling in question proceedings in C.C.No.5389/2020, arising out of P.C.R. No.15259/2020, registered for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881 (‘the Act’ for short).

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NC: 2023:KHC:19646 CRL.P No. 3186 of 2021

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Heard Sri Raghuram Cadambi, learned counsel for

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petitioners and Sri Kiran S., learned counsel for the respondent.

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Facts in brief, as borne out from the pleadings are as follows:

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The respondent – Oswal Minerals Limited is the complainant. Oswal Minerals Limited had certain transactions with another Company – M/s.Isinox Limited. In furtherance of such transactions, it transpires that M/s. Isinox Limited had issued certain cheques to Oswal Minerals Limited – complainant. On the presentation of the said cheques by Oswal Minerals Limited – complainant, the same were dishonoured for

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the reason ‘payment stopped by the drawer’ . It is then the complainant seeks to initiate steps by issuing a notice to both Isinox Limited and another Company - India Steel Works Limited. After receipt of the reply, the complainant initiates proceedings invoking Section 200 of the Cr.P.C. before the concerned Court. The concerned Court takes cognizance, issues summons and registers a case in C.C.No.5389/2020. The registration of C.C.No.5389/2020, against the petitioners is what drives the petitioners to this Court in the subject petition.

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Learned counsel for the petitioners contend that the petitioners in the subject petition have nothing to do with the transactions between the complainant or Isinox Limited. Petitioner No.1 is an independent non-executive director and likewise, petitioner No.5 is also an independent non-executive director, who are not in the know of day-to-day affairs of the Company. Insofar as other petitioners are concerned, learned counsel for the petitioners submits that they are all directors of India Steel Works Limited and never been as directors of Isinox Limited, which is the one which issued the cheques, in favour of the complainant – Oswal Minerals Limited. He would seek quashment of the proceedings on the aforesaid grounds, qua these petitioners.

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Learned counsel for the respondent – complainant vehemently refutes the submissions of the learned counsel for the petitioners to contend that the petitioners are the directors of both the Companies and therefore, they are responsible for day-to-day affairs of the Company and are aware of the fact of issuance of the said cheques, which are now been dishonoured and proceedings are instituted. He would contend that all the contentions of the learned counsel for the petitioners are the

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matter of evidence, the petitioners have to undergo trial and come out clean in the trial. Therefore, the petition should be dismissed.

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I have given my anxious consideration to the submissions made by the learned counsel for the respective parties and have perused the material on record.

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The afore-narrated facts are not in dispute and requires no reiteration. It is also not in dispute that petitioner No.1 – accused No.2 and petitioner No.5 - accused No.9 are independent non-executive directors of Isinox Limited. The Isinox Limited and the complainant – Oswal Minerals Company had certain transactions and those transactions lead to issuance of certain cheques, which were dishonoured and dishonouring of cheques leads the complainant to the concerned Court to initiate proceedings under Section 138 of the Act in C.C.No.5389/2020.

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A perusal at the documents appended to the petition would clearly indicate that petitioner No.1 - accused 2 and petitioner No.5 – accused No.9 are independent non-executive

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directors of Isinox Limited and therefore, cannot be held that they know the day-to-day affairs of the Isinox Limited, much less, being aware of the issuance of the cheques to the complainant – Oswal Minerals Limited, which is the subject matter of the petition before the concerned Court. Therefore, the proceedings against the independent non-executive directors if permitted to continue before the concerned Court would become an abuse of the process of the law. The Apex Court in the case of SUNITA PALITA V. PANCHAMI STONE QUARRY reported in (2022) 10 SCC 152, has held as follows:

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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 in the running of its business. Such Director is in no way responsible for the day-to-day running of the accused Company. Moreover, when a complaint is filed against a Director of the company, who is not the

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signatory of the dishonoured cheque, specific averments have to be made in the pleadings to substantiate the contention in the complaint, that such Director was in charge of and responsible for conduct of the business of the Company or the Company, unless such Director is the designated Managing Director or Joint Managing Director who would obviously be responsible for the company and/or its business and affairs.”

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(Emphasis supplied)

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In the light of the afore-extracted judgment of the Apex Court, an independent non-executive director, who is not aware of day-to-day affairs of the company, cannot be held liable or responsible for conduct of the business of the company.

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Insofar as other petitioners are concerned, the petitioner Nos.2, 3, 4 and 6 are concerned, petitioner No.2 is said to be the non-executive director of Indian Steel Works Limited; petitioner No.3 is former Company Secretary of Indian Steel Works Limited; petitioner No.4 is again an independent director of India Steel Works Limited and petitioner No.6 is India Steel Works Limited. A perusal at the photocopies of the cheques appended to the petition would indicate that they are issued by Isinox Limited in favour of the complainant. If the

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issue is to be answered, it has to be answered by Isinox Limited and the authorized signatory of the cheques is responsible for insurance of the cheques. The notice that is issued by the complainant to the petitioners – directors of both the companies i.e., Isinox Limited and India Steel Works Limited, is germane to be noticed as well. Para 5 of the notice issued by the complainant, reads as follows:

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“5. We are instructed that the 3^rd , 4^th and 5^th of you are all signatories to the above said cheques and 2^nd to 11^th of you are responsible for the day today affairs and conduct of the business of the 1^st amongst you.”

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(Emphasis added)

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The only averment against these petitioners is as afore-quoted. The petitioners in the case at hand are between those second to eleventh persons indicated in the notice as afore-narrated.

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In the light of the undisputed fact that petitioner Nos.1 to 5 are independent non- executive directors of Isinox Limited and petitioner Nos.2, 3 and 4 are directors and former

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Company Secretary of the India Steel Works Limited and that they are not in the know of the day-to-day affairs of the company and not even the directors of Isinox Limited. If further proceedings against these petitioners are permitted to continue, it would become an abuse of the process of the law and result in miscarriage of Justice. Therefore, I deem it appropriate to terminate the proceedings initiated against these petitioners.

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For the aforesaid reasons, the following:

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ORDER

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a. The criminal petition is allowed.

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b. The proceedings in C.C.No.5389/2020, pending before the XXVII Additional chief metropolitan Magistrate, Bengaluru, stand quashed, qua the petitioners.

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NVJ List No.: 1 Sl No.: 71

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Sd/JUDGE

Mr Tilak Raj Bajalia v. M/S Oswal Minerals Limited

Case brief

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Mr Tilak Raj Bajalia v. M/S Oswal Minerals Limited

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