Allowed

Mr.Pradeep Kumar Mahapatro, v. The State of Telangana

Telangana HC26 Jul 2022CRLP/4059/2017

Case brief

AI extract

What is this about?

The High Court quashed criminal proceedings against independent and non-executive directors under Section 138 of the Negotiable Instruments Act. The court held that they were not in charge of the company's business nor responsible for its conduct of business.

What did the court decide?

Criminal proceedings in C.C. No. 11 of 2017 against the petitioners on the file of the III Special Magistrate, Erramanzil, Hyderabad are quashed.

Mr.Pradeep Kumar Mahapatro, Vs The State of Telangana — Cheque Dishonour | Telangana HC (2022)

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[^32se ]

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HIGH COURT^{FOR THE STATE OF TELANGANA} AT HYDERABAD

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TUESDAY,THE^{TWENTY SIXTH DAY OF JULY} TWO THOUSAND^{AND TWENTY TWO}

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PRESENT

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THE HONOURABLE^{DR. JUSTICE D.NAGARJUN}

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CRIMINAL P^{ETITIONNO:40 59oF 2017}

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Between:

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Mr.Pradeep Kumar^{Mahapatro' S/o Badri} .Narayana^{MaharTro' Director' Aged} a[ti,::it":,$;$xlt.b''n'.'";rii5'?vf'lb:TfiJ[:'Ufr^:'"":la# i"-iii]lt'-oo^{op6'Visno"o"- Hoipitai, RalbhavanRoadSomajiguda'}

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Hvderabad-500082.-Cout,

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Hvderabad-500082.-Cout, S/o Sukadev Rout Aged abo^ut 74 vears' Director' M/s

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z. ' irrl.'a:r'Jniil"r"o, 5;;;;i;;1i;i Ailiot"tn'a Fo-*diLt.it"oiFoimerty octant-lnclustries Limited) il'riit-'it, otri"" *ets,^{t6ti wi"g, Amrutha'Villewelfare Association,} ij'"ilfi%.'n-"or-iiJipii"r,^{n'"lu-nryan R5aoSomajisuda' Hvderabad-500082'}

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a. ' XSr:;r,?li;"sn:"'itii"'Vdr-i"i'n'ir-iii'ioi"rl,.st" i'6"ri 7l'v"ir", tr,v" sarn'iiyoini Agiote"i a Power Limited (Formerly^{AvaoniniKolachana,^Ased} octant i"ilr"iJiJJi-iiiJiHr;i"s;[^{off,d *31s, r_.rt wing, AmruihaVille welfare} -op'p'vasndoi Hospitai, Rajbhavan Road Somajisuda'

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;il-;;i;6; Hvderabad-500082.

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a iiJiHl?tiiil ii.i,ii sl"^{chaktadharRout'} .ased^{about 58 vears' Director' M/s} ";Hfi #iil{,,Jmts"fi !;t:Figdwn[lm";ti,3'01jll!i'f^'R.'"'ul131l

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ijpijli%"i',i,oi'ri6ipiiar,^{nalo-haran R6basomaiisuda'Hvderabad-500082'}

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...PETITIONER/ACCUSED^No.3to6

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AND

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1 The State^{of Telangana, Represented by its PublicProsecutor'High Court}

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2 i'Yjtli"?L[Yl3[,1?,?l;,^{Represented bv its Partner Mr.rshwarchand,s/o Sri} 'di"aoil;ft;t;, it'"1i'"'tjo'rt oTiears,bcc: Business, havins office at 15-2441 /'i Kishangunl,^HYderabad.

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...RESPONDENT/COMPLAINANTS

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Petition under^{Section 482 of Cr'PC prayingthat in the circumstances} stated in the Memorandum^{of Grounds of CriminalPetition' the High Court may} be pleased to^{quash the proceedingsin CC No 11/2017on the file of the lll} SpecialMagistrate,Erramanzil,Hyderabadri-^('.

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l.A. NO: 1 OF 2C 17(CRLPMP. NO: 3895 OF 2017)

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Petition L nder Section 482 of Cr.P.C praying that in thr., circumstances stated in the |\r'lr morandum of Grounds of criminal petition Ihe High court may be pleased tr) Stay all further proceedings including irppearance of the Petitioners in )C No.11l2017 on the file of the lll Sipeoial Magistrate, Erramanzil, Hyd rraberd, pending disposal of Criminal petiti,)n before this Hon,ble Cou rt

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This Petit on coming on for hearing, upon perusing llre lr4emorandum of Grounds of Crirr nal Petition and upon hearing the argum€.nls o1 Sri. l. MAAMU VANI, Advocate for the Petitioner and the public prosecutc,r- on behalf of the Respondent No. 1 and of Sri. PAWAN KUMAR AGARW,\1.. Advocate for the Respondent No.:

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The Court made :he following: ORDER

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THE HONOURABLE^{DR. JUSTICE D. NAGARJUN}

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cRIMINAL PETITIoN No.4059 OF^2Ot7

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ORDER:

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The petitioners/A3^{to A6} in^{C.C.No. 11 of 2Ol7 on the file} of III Special^{Magistrate, Erramanzil,Hyderabad,are seeking} quashment^{of the charge sheetagainstthem.}

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The^{brief facts are that} the de-facto

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complainant/respondent^{No.2 filed a private complaint under} SecLion^{2OO Cr.P.C. for the offence under Section 138 of} Negotiable^{InstrumentsAct (for short, "the Act") againstthe} petitioners and^{also other accused alleging that A1 is the} company^{and A2 to A6 are its Directors and are lookingafter} and taking^{activeparticipation in its day to day affairs.A I} de-facto company^{haspurchased oil from the} complainant/respondent^{No.2. Initiallyit started purchasing} the oil on^{cash basis and subsequentlyon credit basis. Al} company fell^{due an amorlnt ofRs. 14,28,815/- tothe} complainant^{whichdeals with oil. When the accusedfailed to} pay the said^{amount, on the persistent demards from the} complainant,^{Alissuedanother chequebearing No.429295} datdd 05.04.2016^{for Rs.14,28,815/-drawn on Axis Bank}

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Limited, H,'derabad along nith covering Ietter rlateC 31 .03.2016 in discharl e o[ the said debt and when the said cheque was presented i I the Axis bank by the de_facto co:.rplainalt, it was dishonurne I u,ith an endorsement "funds in su ficient,. On 05.05.2016 de-facto complainant issued statrrlor5- notice and subsequently filed a complaint under Sect;or I3ti of the Act against A 1 company and all its directors inc:luding the petitioners herein. Aggrieved by the same, the l:r:titioners have filed this quz sh petition.

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Heard I _.arned counsel for the petitioners a_n f aiso iearned counsel reprr senting the de-facto complainant atrri perused the record

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4 ' Novi', t, re point for consideration ls ivrrether the proceedings a1 Jainst the petitioners in C.C.No .ll ,f 2OlZ can be quashed?

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It is subr oitted by the learned counsel for tht: petitioners that even if al1 _he allegations leveled against the p,:,,ifiens15 al-. accepted to be trut:, still the offence under Sectrrrn l lig of the Act is not ma le out. It is also submitted th;rt A t is the

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!t. company registered unde. the Companies Act, whereas A2 is its Managing Director. However, petitidner No.l/A3 is nonexecutive/non-independent director, whereas petitioner Nos.2 to 4/A4 to ,{6 are non-executive /independent directors, and A2 being Managing Director is in-charge of day to day affairs of the company and the petitioners are no way concerned with the day to day activities of the A1 company, thereby vicarious liability cannot be fastened on them.

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A perusal of the material on record would reveal that respondent No-2/ has f,rled a complaint for the offence under Section 138 of the Act alleging that A1 company has issued cheque for an amount of Rs. 14,28,815/- and when the same was presented in the bank, it was dishonotrred with an endorsement "funds insuflicient" on which a statutory notice was issued and as the accused has not paid the amount under the cheque, the complaint is filed.

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The petitioners have fiIed copy of the 19o Annual Report for the years 2012-2013, which shows that one Manmohan Sahu is the Chairman and Managing Director of A1 company and the petitioners herein are the Directors of the said

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company. It is the contention of the petirione -s. that they are the independ ent directors of the company :rnd tt,:,,:y clo not have any concern in respect of the day to clay a <: t ivir_ies of the compan)r and that they are not in_charge of the (:()ralpary.

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When tl re statutory notice dated 05.05.2C [,5 vras issued by the de-fac.o complainant, a reply notice clal t:,rl 1O.OS.2O16 was given by 41 company, wherein it is menti,ned in first paragraph itst lf that the petitioners are Indepenctent Directors acting only in the capacity of advisors and not i::i,oh_ed in the day to day ope-ations of the company ald is furtlL:r a,lded that these directorr are Non-Executive and Indcpencl,r.rt Directors only. Therefo^-e, even before the complaint is file,rl b-y the de_ facto complaini Lnt, the comp'lainant compan\ is av",irre that the petitioners a-re no. -executive Independent Direct: rs and they are no way concerned with the day to day zL j.airs of Al company.

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9 The questi tn is whether the liability uncler Se:tion 13g of the Act can br fastened on the petitioners, vrlL: a'r-e non_ executive / indept ndent directors. It is to be noted tl Lat the defacto complainar t company even though anvare of th,: fztct that

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the petitioners have been alleging that they are independent and non-executive directors, have not'filed any document to show that the petitioners are not the non-executive independent directors and that they are participating in the day to day activities of A I company.

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The law in respect of fastening of the liability under Section 147 of the Act is very much settled. The vicarious liability of the director of a company insofar as Section 13g of the Act can be gathered from Section l4L of the Act, which runs as under:

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"141 Offences by companies. -

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iU If the person committing an offence under section 13g 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 deemed to be guilty of the offence and shall be Iiable to be proceeded against and punished accordingly: Provided that nothing contained in tJ is sub_ section shall render any person liable to punishment if he proves that the offence was committed without his lcrowledge, or that he had exercised all due diligence to prevent the commission of such offence: z2 [provided further that where a person is nominated as a Director of a company by virtue of his holding any oIfice or emploJrment in the Central Government or State Government or a financial corporation owned or controlled by the Central Govemment or the State

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Governn er1t, as the case may be, he shall rrot^t. :^{li,rble for} prosecut .on tLnder this Chapter.l

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Notrvithstanding anything contai.ned in sut^- scction^(1), A) where a ry olTence under this Act has been^{corlrLrittt:dby a} companJ arld it is proved that the offence has^{br:r'rrcoramitted} with the consent or connivance of, or is attr:brr^{t l rle to, any} neglect r n the part of, any director,^{manager, :itcretary or} other oIIl :er c,f the company, such^{director,manall)r,s€cretary} or other rlhcer shall also be deemed^{to be grrilty o-tratoffence} ancl sha I be liable to be^{proceeded agair-rsta;r: pt:nished} accordinl ,ly.

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F)xplalat on.-- For the^{purposesof this sectlr)n,-}

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tAI "c< mpany" means any body corporate^{antl tncl.rdesa} fir: r or other association of individuals:^ar-rrl

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p) "di^'ector", in relation to a firm, means a piltncr^{in the} hrr r."

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1 l. Theretbr 3, a director can be made^liabLeo1r '^{in case if the} said director was in-charge of and^{was resp('ll sible for the} company for the conduct of the^{business of the :ompary.The} de-facto comp.ainiant^has not^{placed any milterrz j to rrove that} the petitioner, ; being independent^{directorshar t: been taking} active role in day' to day^{activities of the com} ['i^my.Merely holding a desi, ination as a director,^{cannotbe he rl liable under} Section 138 of the Act. On the contrary,^{in t:ase} 'rven^{if there is}

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no Specific designation in the company, if it is forifld that a person is in-charge and responsible for'day to day activities of the company, still he can be fastened with the vicarious liability under Section 141 of Act.

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Learned counsel for the petitioners has placed reliance on the judgment delivered by the Hon'ble Supreme Court in National Small Industries vs Harmeet Singh Paintal &

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Anotherr, wherein it is held as under:

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"It is very clear from Section 141 of the Act that what is required is that the person who is sought to be made vicariously liable for a criminal offence under Section 141 should be, at the time tJ:e offence was committed, in charge of, and responsible to the company for the conduct of the business of tJre company. Every person connected with the company shall not fatl within the ambit of tl:e provision. OnIy ttrose persons who were in charge of and responsible for the conduct of the business of the company at tl.e time of commission of an offence will be liable for criminal action. 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 for a criminal offence under tJ:e provisions. 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 comrnitted and not on the basis of merely holding a designation or oflice in a comPany."

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' lzoto;^{: scc alo}

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' --{r+'^. 7a,1V .t:- i' '^,:.

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In th,: case on hand there are no alerments in the complaint a s tc which of the Directors have k,r:en 46ir_r* *1ra, sort of ac mir.istration in A 1 company. The de_facto complainant is expected to specifically m en tic n as to what is the nature r,f work of each of the directors an,l vzhether the petitioners a.e in-charge and are responsible for ihe day to day activities of 1.1 company. Except mentioning t:r:: fact that the petitioners ar e looking after the day to d:), affairs and actively participating in the day to day affairs of Al ccrnpa;ey did not elaborate any hine more.

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14 . Therefor --, following the ratio of abor c mentioned judgment of ti re Apex Court and considering the t otality of the

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circum stances , including the submissions mari,_. by both the counsel, this ( tourt finds that there is no materiirl to hold that the petitioners are directors of A1 company and att in_charge of and dischargin 3 dzy to day activities of A1 compirny eLnd there is no record to show that they are participating i.:r the day to day activities of A1 company. on the other harri. trrere is a material to show that the petitioners ar€, nonexecutivey'ndep:ndent directors. Further, ther are not

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signatories to the cheque, which is dishonoured. Therefore, this is a fit case where the proceedings ,against the petitioners in C.C.No.ll of 20L7 are liable to be quashed.

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In the result, the criminal petition is allowed and the proceedings in C.C.No.ll of 2Ol7 against the petitioners on the file of the III Special^p[agistrate, Erramanzil, Hyderabad are hereby quashed.

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Miscellaneous petitions, if any, shall stand closed.

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Sd/. AV.S.PRASAD ASSISTANT REGISTRAR

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lltr

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/ffRUE COPY// -'-

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SECTION OFFICER

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To,

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The lll Spl. Magistrate, Erramanzil, Hyderabad 2. Two CCs to Public Prosecutor ,High Court for the State of Telangana,at HyderabadIOUTI 3. One CC to SRl. l. MAAMU VANI, Advocate [OPUC]

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One CC to SRl. PAWAN KUMAR AGARWAL, Advocate [OPUC]

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Two CD copies

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BM ..

HIGH COI'RT

DATED:2(;10712022

ORDER

CRLP.No.,t059 of 2017

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a l''..+,'
.<br>Igt \ri<br>

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ALLOWIN(i THE CRIMINAL PETITION WITHOUT COSTS

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)h
1b

Mr.Pradeep Kumar Mahapatro, v. The State of Telangana

Case brief

What is this about?

What did the court decide?

Mr.Pradeep Kumar Mahapatro, v. The State of Telangana

Case brief

What is this about?

What did the court decide?

What the court decided

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Issues for consideration

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