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REPORTABLE

IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NOS.1692-1718 OF 2013  (@SPECIAL LEAVE PETITION (CRL.) NOS. 2970-2996 OF 2012)

A.K. SINGHANIA     … APPELLANT

VERSUS

GUJARAT STATE FERTILIZER CO. LTD. & ANR.  …RESPONDENTS

WITH

CRIMINAL APPEAL NOS.1719-1725 OF 2013  (@SPECIAL LEAVE PETITION (CRL.) NOS. 3100-3106 OF 2012)

A.K. SINGHANIA     … APPELLANT

VERSUS

GUJARAT STATE FERTILIZER CO. LTD. & ANR.  …RESPONDENTS

CRIMINAL APPEAL NOS.1726-1732 OF 2013 (@SPECIAL LEAVE PETITION (CRL.) NOS.984-990 OF 2013)

GUJARAT STATE FERTILIZER CO. LTD.     … APPELLANT

VERSUS

VIKRAM PRAKASH & ANR.  …RESPONDENTS

CRIMINAL APPEAL NOS.1733-1759  OF 2013 (@SPECIAL LEAVE PETITION (CRL.) NOS. 1068-1094 OF 2013)

GUJARAT STATE FERTILIZER

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CO. LTD.     … APPELLANT

VERSUS

VIKRAM PRAKASH & ANR.  …RESPONDENTS

J U D G M E N T  

CHANDRAMAULI KR. PRASAD, J.

In  all  these  special  leave  petitions  common  

question of law and facts arise and, therefore, they  

have been heard together and are being disposed of by  

this common judgment.

Leave granted.

In  all  these  cases  we  are  concerned  with  

accused A.K. Singhania and Vikram Prakash.  Several  

complaints  were  filed  by  Gujarat  State  Fertilizer  

Company against Esslon Synthetics Ltd., its Chairman,  

Managing  Director  and  other  Directors  including  

aforesaid A.K. Singhania and Vikram Prakash alleging  

commission of an offence under Section 138 of the  

Negotiable Instruments Act, hereinafter referred to  

as ‘the Act’.   

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In Complaint Case No. 331 of 1996 the allegations  

which are relevant for the decision of these appeals  

read as follows:

“3.  The  accused  No.  14  is  a  Limited  Company  registered  under  the  Companies  Act,  1956  and  are  doing  business of chemicals, synthetics etc.  The accused No. 1 is Managing Director  of accused company No. 14 and accused  No.  2  is  Deputy  Managing  Director,  accused No. 3 is Chairman, accused No.  4 is Whole Time Director, accused No.  5 is Finance Director, accused No. 6  to  12  are  the  Directors  and  the  accused  No.  13  was  Senior  Manager  (Finance) of the accused company No.  14 Esslon Synthetics Ltd.

4. All the business and financial  affairs of the accused company No. 14  are  decided,  organized,  administered  by  accused  No.  1  being  Managing  Director  and  accused  No.  2  being  Deputy Managing Director, accused No.  3 Chairman, accused No. 4 Whole Time  Director,  accused  No.  5  Finance  Director  with  consultation  of  other  Directors  from  accused Nos.  6 to 12  and  accused  No.  13  was  Sr.  Manager  (Finance) of accused company No. 14.  So accused Nos. 1 to 12 and accused  No.  13  are also responsible  for  all  the transactions and business affairs  done on behalf of accused Company No.  14  and  are  responsible  for  all  the  financial  affairs  and  administration  of accused Company No. 14.”  

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A.K. Singhania is the accused No. 7 and Vikram  

Prakash is accused No. 9 in this complaint.

In  Complaint  Case  No.  1293  of  1996,  the  

allegations  with  which  we  are  concerned  in  these  

appeals read as follows:

“4. All the business and financial  affairs of the accused company No. 1  are  decided,  organized,  administered  by the  accused No.  2 being  Managing  Director  and  accused  No.  3  being  Managing  Director,  accused  No.  4  Chairman,  accused  No.  5  Whole  Time  Director,  accused  No.  6  Finance  Director  with  consultation  of  other  Directors  from  accused Nos.  7 to 13  and  accused  No.  14  was  Sr.  Manager  (Finance) of accused No. 1.  At the  time the offence was committed, they  were incharge of and were responsible  to the company for the conduct of the  business  of  the  accused  company.  Therefore,  they  are  responsible  for  day  to  day  affairs  and  all  the  transactions  and  business  done  on  behalf of the  accused Company  No.  1  and they are also responsible for all  the  financial  affairs  and  administration  of  accused  company  No. 1.”

A.K.  Singhania  and  Vikram  Prakash  have  been  

arrayed as accused Nos. 8 and 10 in this complaint  

and in all other complaints, the allegations against  

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A.K.  Singhania  are  identical  to  what  have  been  

alleged in the Complaint Case No. 331 of 1996.

Taking into account the allegations made in the  

respective  complaints,  the  learned  Magistrate  took  

cognizance  of  the  offence,  issued  process  to  the  

accused aforesaid besides other accused to face trial  

for commission of the offence under Section 138 of  

the Act.   

Vikram Prakash, aggrieved by the order issuing  

summons to face trial under Section 138 of the Act in  

different  complaints,  filed  applications  under  

Section 482 of the Code of Criminal Procedure for  

quashing  the  order  taking  cognizance  and  issuing  

process.   The  applications  filed  by   said  Vikram  

Prakash  were  registered  as  Criminal  Miscellaneous  

Application Nos. 13393-13399 of 2007.  The High Court  

by its common order dated January 20, 2012 allowed  

all  the  applications  and  quashed  his  prosecution.  

While doing so, the High Court held as follows:

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“7.…………It is to be noted that as  such there are general allegations and  averments against the applicant in the  complaints,  however  there  are  no  specific allegations and averments in  the  complaint  against  the  applicant  with respect to transaction for which  the cheques were issued by the accused  no.  14  company.   Under  the  circumstance,  on  the  ground  that  applicant  was  non  Executive  Director  of  the  Company  on  the  board  of  the  company, which is not disputed by the  complainant,  the  applicant  cannot  be  prosecuted  for  the  offence  under  Sections 138 r/w 141 of the Negotiable  Instruments  Act  and  cannot  be  held  vicariously  liable  for  the  offence  alleged to have been committed by the  accused  no.  14  company.   Under  the  circumstance, this Court is of opinion  that this is a fit case to exercise  the  powers  under Section  482  of  the  Code  of  Criminal  Procedure  and  to  quash  and  set  aside  the  impugned  complaint/criminal case qua applicant- original accused no. 9……”  

It is this common order which has been assailed  

by the Gujarat State Fertilizer Company Ltd. in the  

special leave petitions filed by it.  

A.K.  Singhania  also,  aggrieved  by  the  order  

issuing process under Section 138 of the Act, filed  

separate  applications  for  quashing  the  entire  

prosecution  including  the  aforesaid  order  under  

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Section 482 of the Code of Criminal Procedure.  All  

the applications filed by A.K. Singhania were taken  

together by the High Court for consideration and by  

the impugned order the applications filed by him have  

been  dismissed.   While  doing  so,  the  High  Court  

observed as follows:

“9. As  the  paragraphs  of  the  complaint  reproduced  in  earlier  part  of  decision  specifically  para  4  and  subsequent  paragraphs  would  reveal  that the applicant in the capacity of  Director was responsible for business  affairs  and he was  in-charge  of  the  Company.  Not only that but nowhere it  can  be  said  that  the  applicant  was  non-Executive Director and even if it  is so the said argument is in realm of  defence to be decided by Court trying  the  case  under  the  Negotiable  Instruments  Act.   Since  sufficient  averments attracting of Section 138 of  Negotiable  Instrument  Act  are  the  foundation of the complaint and it is  further  averred  that  cheques  were  issued  with  mischievous,  dishonest  intention, knowingly and willingly to  cheat  the  complainant  company.  Arguments  canvassed  by  learned  advocate  for  the  applicant  do  not  require  any  further  deliberation  in  exercise of powers under Section 482  of  the  Code  since  quashing  the  complaint  would  not  secure  end  of  justice  but  would  result  into  miscarriage of justice………..”  

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A.K. Singhania, aggrieved by the aforesaid common  

order, has preferred these special leave petitions.

Leave granted.

We  have  heard  Mr.Ranjit  Kumar,  learned  Senior  

Counsel on behalf of the accused A.K. Singhania and  

Mr.Ashok Kr. Srivastava, learned Senior Counsel   on  

behalf  of  Vikram  Prakash  whereas  the  complainant,  

Gujarat State Fertilizer Company Ltd. is represented  

by Mr. Jayant Bhushan, learned Senior Counsel.  Mr.  

Ranjit  Kumar  appearing  on  behalf  of  the  accused  

submits that necessary averments that at the time the  

offence was committed, the accused were in-charge of  

and responsible for the conduct of the business of  

the company have not been averred, which is sine qua  

non  for  proceeding  against  the  Directors  of  the  

company.  He has drawn our attention to the averments  

made in the complaints, which we have reproduced in  

the preceding paragraphs of this judgment and submits  

that mere assertion that these accused persons were  

the Directors of the company is not sufficient to  

make them liable under Section 141 of the Act.  Mr.  

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Jayant Bhushan however, submits that there is clear  

averment in the complaint that these accused persons  

were the Directors of the company and, in fact, in-

charge  of  and  responsible  for  the  conduct  of  the  

business of the company and, hence, they were rightly  

summoned to face the trial.  He points out that the  

judgment and order of the  High Court quashing the  

prosecution  of  accused  Vikram  Prakash  is  under  

challenge in this batch of appeals and accused A.K.  

Singhania cannot take benefit of the said order and  

the fate of both the accused shall depend upon the  

decision  in  all  these  appeals.   Mr.  Ranjit  Kumar  

submits  that  on  same  set  of  facts  when  the  

prosecution of the accused Vikram Prakash has been  

quashed,  there  does  not  seem  any  justification  to  

decline the prayer of the accused A.K. Singhania.

In  view  of  rival  submissions,  we  proceed  to  

consider  the  exact  allegations  made  against  the  

accused  A.K.  Singhania  and  accused  Vikram  Prakash.  

It is not in dispute that allegations against both  

the accused in different complaints are one and the  

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same.   In  Complaint  Case  No.  331  of  1996,  the  

allegation  is  that  “all  business  and  financial  

affairs  of  the  accused  company  are  decided,  

organized, administered by Accused Nos. 1 to 5”.  It  

has further been alleged that Accused Nos. 1 to 5 do  

so  with  consultation  of  other  Directors  namely,  

Accused  Nos.  6  to  12.   In  view  of  aforesaid,  

according to the complainant, accused Nos. 1 to 13  

are  also  responsible  for  all  the  transactions  and  

business  affairs,  financial  affairs  and  

administration done on behalf of the accused company.  

It is relevant here to state that A.K. Singhania and  

Vikram Prakash  are accused Nos. 7 and 9 in this  

complaint.   The  averments  made  in  the  complaint  

nowhere suggest that these two accused, at the time  

the  offence  was  committed,  were  in-charge  of  and  

responsible for the conduct of the business of the  

company.  According to the complainant itself, it was  

accused Nos. 1 to 5 who were taking decisions and the  

allegation that in taking the decisions they used to  

consult these accused also will not mean that these  

two  accused  were  at  the  time  the  offence  was  

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committed, were in-charge of and responsible for the  

conduct of business of the company.  In complaint  

Case No. 1293 of 1996 and all other complaints with  

which we are concerned in  the present appeals the  

allegation  is  that  “all  business  and  financial  

affairs  of  the  accused  company  No.1,  are  decided,  

organized, administered by accused Nos. 2 to 6 and in  

consultation  of  other  directors  i.e.  from  accused  

Nos. 7 to 13”.  It has further been averred that at  

the time the offence was committed “they were in-

charge and responsible to the company for the conduct  

of  the  business”  and,  therefore,  “they  are  

responsible for day to day affairs and transaction,  

business  and  all  financial  affairs  of  the  accused  

company.”   Mr.  Ranjit  Kumar  submits  that  the  

aforesaid averments are not sufficient and from that  

it cannot be inferred that accused A.K. Singhania and  

accused  Vikram  Prakash  have  been  alleged  to  be  

in-charge  and  responsible  for  the  conduct  of  the  

business of the company at the time the offence was  

committed.   He  points  out  that  A.K.  Singhania  is  

accused  No.  8  whereas  accused  Vikram  Prakash  is  

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accused  No.  10  in  these  complaints.   Mr.  Jayant  

Bhushan, however, joins issue and submits that the  

substance  of  the  accusation  clearly  indicates  that  

the two accused were in-charge and responsible for  

the conduct of the business of the company at the  

time of the offence.   

We have perused the complaints and, in fact, the  

relevant  portions  of  the  allegations  have  been  

reproduced  in  the  foregoing  paragraphs  of  the  

judgment.  From that it is difficult to infer that  

there is any averment that these two accused were  

in-charge of and responsible for the conduct of the  

business of the company at the time the offence was  

committed.  The allegations in the complaints in sum  

and  substance  mean  that  business  and  financial  

affairs of the company used to be decided, organized  

and administered by accused Nos. 2 to 6 and while  

doing so, other Directors including the two accused  

herein were consulted.  The inference drawn by the  

complainant  on  that  basis  that  these  two  accused,  

therefore,  are  in-charge  and  responsible  to  the  

company  for  the  conduct  of  its  business,  is  

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absolutely misconceived.  We are, therefore, of the  

opinion that essential averment in the complaints is  

lacking.

In case of offence by company for dishonour of  

cheque, the culpability of the Directors has to be  

decided with reference to  Section 141 of the Act,  

same reads as follows:

“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 deemed to be guilty of the offence  and  shall be liable to be  proceeded  against and punished accordingly:  

Provided that nothing contained in  this  sub-section  shall  render  any  person  liable  to  punishment  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:  

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 the case  

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may  be,  he  shall  not  be  liable  for  prosecution under this Chapter.

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

Explanation.- For the purposes of this  section,-  

(a) "company"  means  any  body  corporate and includes a firm  or  other  association  of  individuals; and  

(b) "director", in relation to a  firm, means a partner in the  firm.”

From a plain reading of the aforesaid provision  

it is evident that every person who at the time the  

offence was committed is in charge of and responsible  

to the Company shall be deemed to be guilty of the  

offence under Section 138 of the Act.  In the face of  

it, will it be necessary to specifically state in the  

complaint that the person accused was in charge of  

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and responsible for the conduct of the business of  

the Company?  In our opinion, in the case of offence  

by  Company,  to  bring  its  Directors  within  the  

mischief  of  Section  138  of  the  Act,  it  shall  be  

necessary to allege that they were in charge of and  

responsible to the conduct of the business of the  

Company.  It is necessary ingredient which would be  

sufficient  to  proceed  against  such  Directors.  

However, we may add that as no particular form is  

prescribed, it may not be necessary to reproduce the  

words of the section.  If reading of the complaint  

shows and substance of accusation discloses necessary  

averments,  that  would  be  sufficient  to  proceed  

against such of the Directors and no particular form  

is necessary.  However, it may not be necessary to  

allege and prove that, in fact, such of the Directors  

have any specific role in respect of the transaction  

leading to issuance of cheque.  Section 141 of the  

Act makes the Directors in charge and responsible to  

Company  “for  the  conduct  of  the  business  of  the  

Company” within the mischief of Section 138 of the  

Act and not particular business for which the cheque  

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was issued.  We cannot read more than what has been  

mandated in Section 141 of the Act.

A large number of authorities of this Court have  

been cited by the counsel representing the party to  

bring home their point.  We deem it inexpedient to  

refer to all of them.  Suffice it to say that this  

question  has  been  answered  eloquently  by  a  three-

Judge Bench decision of this Court in the case of  

S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8  SCC 89, in the following words:

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

(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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This  Court  in  the  case  of National  Small  

Industries  Corpn.  Ltd.  v.  Harmeet  Singh  Paintal,  

(2010) 3 SCC 330,  after reviewing all its earlier  

judgments summarized the legal position as follows:

“39.  From  the  above  discussion,  the  following principles emerge:

(i) The primary responsibility is on  the  complainant  to  make  specific  averments  as  are  required  under  the  law in the complaint so as to make the  accused  vicariously  liable.  For  fastening  the  criminal  liability,  there  is  no  presumption  that  every  Director knows about the transaction.

(ii) Section 141 does not make all  the Directors liable for the offence.  The criminal liability can be fastened  only on those who, at the time of the  commission  of  the  offence,  were  in  charge of and were responsible for the  conduct  of  the  business  of  the  company.

(iii)  Vicarious  liability  can  be  inferred against a company registered  or  incorporated  under  the  Companies  Act,  1956  only  if  the  requisite  statements, which are required to be  averred in the complaint/petition, are  made so as to make the accused therein  vicariously  liable  for  offence  committed  by  the  company  along  with  averments  in  the  petition  containing  that the accused were in charge of and  responsible  for  the  business  of  the  company  and  by  virtue  of  their  

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position  they  are  liable  to  be  proceeded with.

(iv) Vicarious liability on the part  of a person must be pleaded and proved  and not inferred.

(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.

(vi) If the accused is a Director or  an officer of a company who signed the  cheques on behalf of the company then  also  it  is  not  necessary  to  make  specific averment in the complaint.

(vii) 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.”

In  Harshendra  Kumar  D.  v.  Rebatilata  Koley,  

(2011)  3  SCC  351, after  referring  to  its  earlier  

decisions  in  S.M.S.  Pharmaceuticals  Ltd.(supra),  National  Small  Industries  Corpn.  Ltd.(supra),  N.  

Rangachari v. Bharat Sanchar Nigam Ltd., (2007) 5 SCC  

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108  and  K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48,  

this Court reiterated the same view.

  We have found on fact that there is no averment  

that the two accused herein were in charge of and  

responsible for the conduct of the business of the  

company  at  the  time  the  offence  was  committed.  

Hence,  there  is  no  essential  averment  in  the  

complaints.  In view of what we have observed above,  

the prosecution of accused A.K. Singhania and accused  

Vikram  Prakash  cannot  be  allowed  to  continue.  

Accordingly, the order of the High Court quashing the  

prosecution of the accused Vikram Prakash is not fit  

to be interfered with.  For the same reason the order  

passed by the High Court declining the prayer of A.K.  

Singhania for quashing of the prosecution cannot be  

sustained and the appeals preferred by him deserve to  

be allowed.    

In the result, we dismiss the appeals preferred  

by the complainant Gujarat State Fertilizers Company  

Ltd.  and  allow  the  appeals  preferred  by  A.K.  

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Singhania  and  quash  his  prosecution  in  all  these  

cases.

      ……………………..………………………………..J.  (CHANDRAMAULI KR. PRASAD)

 …….….……….………………………………..J.                   (KURIAN JOSEPH)

NEW DELHI, OCTOBER 17, 2013  

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