IN THE OF KARNATAKA HIGH COURT, Criminal Petition Nos. 5404 of 2017, 4509, 4510, 4511/2018 and 8672/2017, Decided On: 06.06.2019, Kiran Vittal Poojary vs Prismatic Engineering Private Limited, in the course of transaction, towards part payment of the dues, an invoice was issued along with a cheque dated 24.05.2016 for an amount of Rs. 1,97,174/- to the respondent company. The cheque was dishonored with the endorsement that 'the payment was stopped by the Drawer'. The respondent thereupon sent a legal notice dated 28.06.2016 and thereafter the complaint was filed. The Magistrate by an order dated 18.11.2016, has taken cognizance of the offence and directed issuance of summons to the petitioner who was a nominee director of the offending company. In the aforesaid factual background, the petitioner has approached the High Court.
The petitioner submitted that he is a employee of SIDBI Venture Capital Limited, which appointed the petitioner as a nominee Director of the Avni Energy Solutions Private Limited. As nominee Director, the petitioner has no role in day to day affairs of the company. The petitioner had also resigned from the Board of Directors on 09.09.2016 as Nominee Director and was appointed as Observer on the Board of Directors on the same day. He submitted that Trial Court ought to have appreciated that the petitioner was merely an investor nominee Director and was not considered as an officer who is in default for any purpose.
The High Court observed that a Liability under Section 141 of the Act is fastened vicariously on a person connected with the company. Therefore, the persons who are sought to be criminally made liable should be at the time of commission of offence, in charge of and responsible to the company for conduct of the company. It is well settled that every person connected with affairs of the company would not fall within the ambit of Section 141 of the Act and only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of offence will be liable for criminal action. The court referred to judgments of Supreme Court in K.K. AHUJA VS. V.K. VORA AND ANOTHER, HOSHIAR SINGH VS. STATE', 'SOORAJ DEVI VS. PYARE LAL','RAJINDER PRASAD VS. BASHIR AND ORS.', 'MONABEN KETANBHAI SHAH AND ANR. VS. STATE OF GUJRAT AND ORS.', "K.P. G. NAIR VS. JINDAL MENTHOL INDIA LTD.', 'U.J.S. CHOPRA VS. STATE OF BOMBAY', S.M.S. PHARMACEUTICALS LTD and observed that the position under Section 141 of the Act can be summarized thus:
(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.
(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 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.
(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.
(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.
(v) Mere reproduction of the wording of Section 141(1) of the complaint is not sufficient to make a person liable to face prosecution.
The Court decided that in the instant case, from the averments made in the complaint, the petitioner also does not fall within the meaning of the expression 'officers who is in default' which . Thus, even if the averments made in the complaint are taken to be correct in its entirety, then also no offence is made out against the petitioner.
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