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REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO.2228      OF 2014   [Arising out of Special Leave Petition (Crl.) No.1724 of 2013]

Gunmala Sales Private Ltd. ...     Appellants

Vs.

Anu Mehta & Ors. …     Respondents

WITH CRIMINAL APPEAL Nos.2261-2265 OF 2014

[Arising out of Special Leave Petition (Crl.) Nos.5500-5504 of 2013]

Gunmala Sales Private Ltd., etc. ...     Appellants

Vs.

Navkar Infra Projects Pvt. Ltd. & etc. …     Respondents

WITH CRIMINAL APPEAL NOs. 2250-2260 OF 2014

[Arising out of Special Leave Petition (Crl.) Nos.5460-5470 of 2013]

Gunmala Sales Private Ltd., etc. …     Appellants

Vs.

Navkar Buildhome Pvt. Ltd. & etc. …     Respondents

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WITH CRIMINAL APPEAL NOs. 2229-2241 OF 2014

[Arising out of Special Leave Petition (Crl.) Nos.5377-5389 of 2013]

Gunmala Sales Private Ltd., etc. ...     Appellants

Vs.

Navkar Buildestates Pvt. Ltd. & etc. …     Respondents

WITH CRIMINAL APPEAL Nos.2242-2249 OF 2014

[Arising out of Special Leave Petition (Crl.) Nos.5437-5444 of 2013]

Gunmala Sales Private Ltd., etc. ...     Appellants

Vs.

Navkar Promoters Pvt. Ltd. & Ors etc. …     Respondents

J U D G M E N T

(SMT.) RANJANA PRAKASH DESAI, J.

1. Leave granted.

2. In these appeals, we are concerned with the question as  

to  whether  the  High  Court  was  justified  in  quashing  the  

proceedings  initiated  by  the  Magistrate  on  the  ground  that  

there was merely a bald assertion in the complaint filed under  

Section  138  read  with  Section  141  of  the  Negotiable  

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Instruments Act, 1881 (“the NI Act”) that the Directors were  

at the time when the offence was committed in charge of and  

responsible  for  the  conduct  and day-to-day business  of  the  

accused-company which bald assertion was not sufficient to  

maintain the said complaint.   

3. These appeals arise out of several complaints filed under  

Section  138  read  with  Section  141  of  the  NI  Act.   The  

complaints  were  filed  by  Gunmala  Sales  Private  Limited  or  

Rooprekha  Sales  Private  Limited  or  by  both.   In  the  

complaints, the respondents herein and others were arrayed  

as accused.   After  the process was issued,  the respondents  

filed various applications under  Section 482 of  the  Code of  

Criminal Procedure, 1973 (“the code”) in the High Court.  The  

High Court disposed of one application being C.R.R. No.4099  

of 2011 by a reasoned order.  As the same issue was involved  

in all the applications, the other applications were disposed of  

in  terms  of  judgment  in  C.R.R.  No.4099  of  2011.   Special  

Leave Petition (Crl.) No.1724 of 2013 was filed challenging the  

said judgment in C.R.R. No.4099 of 2011.  We may, therefore,  

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for  the  disposal  of  these  appeals,  refer  to  the  facts  in  civil  

appeal arising out of Special Leave Petition No.1724 of 2013,  

treating the same as the lead case.  

4. It is the case of the appellant that in or about February,  

2008,  one  Navkar  Buildestates  Private  Limited  (“the  said  

Company”)  through  its  Directors  -  respondents  1  to  3  

approached the  appellant  for  certain  financial  assistance  to  

meet the working capital  requirement of  the said Company.  

Accordingly,  at  the  request  of  respondents  1  to  3,  the  

appellant lent and advanced certain amount of money to the  

said Company.  The said amount carried interest at the rate of  

6% per annum.  Respondents 1 to 3 along with the Managing  

Director of the said Company agreed and undertook to pay the  

said amount on or before 31/7/2011.  It was further agreed by  

the respondents that on their failure to pay the amount on or  

before  31/7/2011,  the  appellant  would be  entitled  to  claim  

interest  at  the  rate  of  18% per  annum.    The  respondents  

failed to repay the entire amount on or before 31/7/2011.  

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5. On 31/7/2011, in acknowledgment of their liability and  

towards  repayment  of  the  amount  due,  the  said  Company  

issued  cheques  in  favour  of  the  appellant.   On  2/8/2011,  

when the appellant presented the said cheques to its banker –  

Canara Bank, the same were returned unpaid with the remark  

“Insufficient  Funds”.   On  20/8/2011,  the  appellant  sent  a  

statutory demand notice to respondents 1 to 4 under Section  

138  of  the  NI  Act.    The  said  notice  was  received  by  

respondents  1 to 4 on 27/8/2011.   As respondents  1 to 4  

failed to repay the amount as demanded in the said notice, on  

26/9/2011, the appellant filed a complaint in the Court of the  

Chief Metropolitan Magistrate at Calcutta.  Learned Magistrate  

accepted the said complaint and passed the summoning order.  

6. Respondents 1 to 4 filed an application before the High  

Court of Calcutta under Section 482 of the Code for quashing  

the proceedings pending before the learned Magistrate.  The  

High Court framed two questions as under:

“(i) Whether the Directors can be prosecuted on the   bald assertion made in the complaint, that “the   Directors thereof and were at the time when the   

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offence  committed  in  charge  of  and  were  responsible  for  the  conduct  and  day  to  day  business of the said accused No.1 company”.

(ii) Whether the Director who has resigned can be   prosecuted  after  his  resignation  has  been   accepted by the Board of  the Directors of  the   Company”.

So far as the first question is concerned, the High Court,  

after  referring to certain judgments of  this Court,  held that  

except the averment that the Directors were in-charge of and  

responsible for the conduct and day to day business of  the  

Company, nothing has been stated in the complaint as to what  

part was played by them and how they were responsible for  

the finances of the company, issuance of cheques and whether  

they had control  over the funds of the company.  The High  

Court observed that the complaint lacked material averments.  

The High Court quashed the proceedings on this ground.  So  

far as the second question is concerned, the High Court held  

that it is not necessary to answer it because the first question  

is answered in favour of respondents 1 to 4. The High Court  

quashed the complaint.  Being aggrieved by the said order, the  

appellant has approached this Court by way of this appeal.  

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7. We have heard Mr. Gurukrishna Kumar, learned senior  

counsel appearing for the appellant as well as Dr. Abhishek  

Manu  Singhvi,  learned  senior  counsel  appearing  for  the  

respondents.  We have perused the written submissions filed  

by the parties.  

8. Gist of the written submissions of the appellants.  

a) It  is  settled  law  that  a  specific  averment  in  the  

complaint  that  he/she  is  in  charge  of  and  is  

responsible to the company for the conduct of the  

business of  the company is sufficient to maintain  

the complaint under Section 138 of the NI Act.  It is  

not incumbent upon the complainant to elaborate in  

the  complaint  the  role  played  by  each  of  the  

Directors  in  the  transaction  forming  the  subject  

matter of the complaint.  A Director is, in law, in  

charge of and is responsible to the company for the  

business  of  the  company  in  view  of  the  various  

provisions of the Companies Act and, therefore, his  

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position is different from that of other officers when  

arrayed  as  a  co-accused  in  a  complaint  under  

Section 138 of the NI Act.  The vicarious liability of  

Director/secretary/manager/other  officers  of  a  

company under Section 141 of the NI Act has to be  

understood  in  the  light  of  the  statutory  language  

employed in Section 141(1)  and Section 141(2)  of  

the  NI  Act.   At  any rate,  the  individual  role  of  a  

Director  is  exclusively  in  the  realm  of  internal  

management of a company and at the initial stage of  

a complaint, it would be unreasonable to expect a  

complainant to elaborate the specific role played by  

a Director in the transactions forming the subject  

matter of the complaint.  In the present case, the  

appellant has pleaded that “the accused 2, 3, 4 and  

5 are the directors of accused 1 and were at the time   

when the offence committed in charge of and were   

responsible for the conduct and day to day business   

of the said accused-company”.”  The High Court on a  

complete  misconstruction  of  legal  position  

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enunciated  by  this  Court  in  various  judgments,  

quashed the complaint on the ground that “nothing  

has been stated as to what part was played by the  

Directors petitioners and how they were responsible  

regarding the finances of the company, issuance of  

cheques  and  control  over  the  funds  of  the  

company.”   In  this  connection,  it  is  necessary  to  

turn to K.K. Ahuja v. V.K. Arora and anr.1 where  

this Court has referred to relevant provisions of the  

Companies  Act  and  observed  that  in  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  NI  Act  and  no  further  

averment  would  be  necessary  in  the  complaint  

1 (2009) 10 SCC 48  

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though  some  particulars  would  be  desirable.   In  

SMS Pharmaceuticals Limited  v.  Neeta Bhalla  

and  anr.2 (“SMS  Pharma-(1)”), this  Court  has  

observed that the requirement of Section 141 is that  

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  the  Director  in  such cases.   Reference  

may  also  be  made  to  Mannalal  Chamaria   v.  

State  of  West  Bengal3,  A.K.  Singhania   v.  

Gujarat  State  Fertilizer  Company Ltd.4,  Rallis  

India Limited  v.  Poduru Vidya Bhushan and  

ors.  5  ,  Paresh P. Rajda v.  State of Maharashtra  

and  anr.  6  ,   Malwa  Cotton  and  Spinning  Mills  

Ltd.  v.  Virsa Singh Sidhu and ors.7  and  N.  

Rangachari   v.   Bharat Sanchar Nigam Ltd.8   

2 (2005) 8 SCC 89 3 (2014) 4 SCALE 55 4 2013(12) SCALE 673 5 (2011) 13 SCC 88 6 (2008) 7 SCC 442 7 (2008) 17 SCC 147 8 (2007) 5 SCC 108

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b) So far as the decisions cited by the respondents are  

concerned,  all  these decisions purported to  follow  

the law laid down in  SMS Pharma-(1), which does  

not lay down any general proposition of law that the  

specific role of a Director sought to be arrayed as an  

accused has to be elaborated in the complaint itself.  

c) The  doctrine  of  ‘Indoor  Management’ would  be  a  

relevant factor to be considered while assessing the  

averments to be made to satisfy the requirements of  

Section 141 of the NI Act.  A complainant to whom a  

cheque is issued by a company may not be aware of  

the functions performed by a particular Director in  

the  company.   The  responsibility  of  each  of  the  

Directors is exclusively the internal management of  

the company itself.  In this connection, it would be  

useful  to  refer  to  Rangachari and  Delhi  High  

Court’s judgment in Shree Raj Travels and Tours  

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Ltd.   v.  Destination of the World (subcontinent)   

Pvt. Ltd.  9   .   

d) Finally, it must be noted that vicarious liability is  

contemplated  in  the  NI  Act  to  ensure  greater  

transparency  in  commercial  transactions.   This  

object  has  to  be  kept  in  mind  while  considering  

individual  cases  and  hardship  arising  out  of  a  

particular case cannot be the basis for Directors to  

try to wriggle out of prosecution.  Section 482 of the  

Code  can  be  invoked  where  it  is  clear  from  

documents  on  record,  such as  Form-32,  that  the  

Director is wrongly arraigned and not in any other  

case.  The High Court clearly fell  into an error in  

quashing  the  proceedings  and,  hence,  impugned  

order deserves to be set aside.

Mr. Gurukrishna Kumar, learned senior counsel for the  

appellant reiterated the above submissions.  

9.  Gist of the written submissions of the respondents: 9 66 Comp Cas 26 (Delhi)

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a) The main accused Shantilal Mehta is facing trial in  

all matters.  The present appeal is limited to other  

family  members  of  Shantilal  Mehta  i.e.  his  father  

Kanhaiyalal Mehta and his mother Shobha Mehta,  

who are over 70 years of  age,  his wife who is 52  

years of  age and his son who is 24 years of  age.  

They are dragged in to harass them.  

b) Mere bald statement that the Director is in charge  

of  responsible  to the company is  not  sufficient  to  

maintain  prosecution  [G.N.  Verma  v.   State  of  

Jharkhand and anr.  10  ].

c) Reproduction of statutory language of Section 141  

is not sufficient.  The necessary requirements of the  

complaint  which  need  to  be  indicated  in  the  

complaint are “how”, “in what manner”, “the role”,  

“description” and “specific allegation” as to the part  

played  by  a  person  before  he  could  be  made  an  

accused.  In this connection, reliance is placed on  10 (2014) 4 SCC 282

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National Small Industries Corporation Limited  

v.   Harmeet  Singh  Paintal  and  anr.  11  ,  Anita  

Malhotra  v.  Apparel Export Promotion Council   

and anr.  12  ,  N.K. Wahi  v.  Shekhar Singh and  

ors.  13  .  These conditions are intended to ensure that  

a person who is sought to be made vicariously liable  

for an offence of which the principle accused is the  

Company,  had  a  role  to  play  in  relation  to  the  

incriminating  act  and further  that  such a  person  

should know what is attributed to him to make him  

liable.  

d) The appellants’ plea of Indoor Management is totally  

misconceived.  This doctrine is limited to protecting  

outsiders  regarding  internal  infirmities  of  

Memorandum of Articles.  Its real application in a  

cheques bouncing case would have been if  a plea  

was taken that the company never had a power to  

incur debt and hence there is no legal liability.  This  

11 (2010) 3 SCC 330 12 (2012) 1 SCC 520 13 (2007) 9 SCC 481

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doctrine cannot be invoked to give a carte blanche  

to an outsider to list  all  Directors for prosecution  

without even giving their “role” or “part played”.  In  

this connection, reliance is placed on MRF Limited  

etc.  v.  Manohar Parrikar and ors. etc.  14  .  The  

judgment of Delhi High Court in Shree Raj Travels  

& Tours is in teeth of the law laid down by this  

Court  and,  hence,  does not  appear  to  be correct.  

Moreover,  in commercial  world,  whether  a  person  

deals  with  a  company  at  the  company’s  office  or  

enters into a commercial transaction by e-mail, in  

both cases,  there is  an awareness of  the persons  

responsible for the act of giving a cheques, without  

the intention of honouring it.   There is,  therefore,  

complete non-applicability of the doctrine of Indoor  

Management in such cases.  

e) It  would  be  against  the  interest  of  justice  to  

prosecute all Directors.  Such approach would delay  

trials and would be against the very scheme of NI  14 (2010) 11 SCC 374

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Act.  If all Directors are unnecessarily prosecuted, it  

would  hinder  good  persons  to  come  forward  and  

become Directors.  It  would have adverse effect on  

corporate well being.  

Dr.  A.M.  Singhvi,  learned  senior  counsel  for  the  

respondents reiterated the above submissions.  

10. It is necessary to first reproduce Section 141 of the NI Act  

because the issue involved in this matter revolves around it.  

Section 141 of the NI Act reads thus:

“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   

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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  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.]”

11. It is also necessary to quote the relevant paragraphs of  

the  complaint  which  relate  to  the  Directors  of  the  accused  

company.  They read as under:   

“2. The  Accused  No.1  is  a  company  within  the   meaning  of  the  Companies  Act,  1956,  having  its   registered office at 103-104, Shubh Apartment, 99-L,   

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Bhopalpura, Udaipur, P.S. Bhupalpura, Rajasthan –   313001 and the Accused Nos.2, 3, 4 and 5 are the   Directors  thereof  and  were  at  the  time  when  the   offence committed in charge of and were responsible   for the conduct and day to day business of the said   accused No.1 company.

3. In  discharge  of  the  accused persons’  existing   legal  debt  and/or  liability,  the  accused  No.1   company  had,  issued  and  made  over  to  the   complainant an account payee cheque signed by the   accused No.2 being No.008049 dated 31st July, 2011  for Rs.40,00,000/- drawn on The Rajsamand Urban   Co-Op. Bank Limited, Udaipur Branch, Rajasthan –   313001.”  

It must be noted here that the complaint is quashed by  

the High Court against all other accused except accused 2 who  

has signed the cheques.  

12. Several  judgments  have  been  cited  before  us.   It  is  

necessary to refer to them in brief to get an idea as to how  

different Benches of this Court have dealt with this issue.  We  

must begin with SMS Pharma-(1), which is a decision of three-

Judge Bench of this Court.   All subsequent decisions are of  

two-Judge Benches.  The three-Judge Bench was dealing with  

the reference made by a two-Judge Bench for determination of  

the following questions:  

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“(a)  Whether  for  purposes  of  Section  141 of  the   Negotiable Instruments Act, 1881, it is sufficient if   the substance of the allegation read as a whole   fulfill the requirements of the said section and it is   not necessary to specifically state in the complaint   that  the  person  accused  was  in  charge  of,  or   responsible for, the conduct of the business of the   company.

(b)  Whether  a  director  of  a  company  would  be   deemed to be in charge of, and responsible to, the   company  for  conduct  of  the  business  of  the  company and,  therefore,  deemed to  be  guilty  of   the offence unless he proves to the contrary.

(c)  Even if  it  is  held that  specific  averments are   necessary,  whether  in  the  absence  of  such   averments the signatory of the cheque and or the   managing directors or joint managing director who  admittedly  would  be  in  charge  of  the  company  and responsible to the company for conduct of its   business could be proceeded against.”

13. After  considering Sections  138 and 141 of  the  NI  Act,  

Sections 203 & 204 of the Code and the relevant provisions of  

the Companies Act, this Court answered the questions posed  

in the reference 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   

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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.

(b) The answer to the question posed in sub- para (b) has to be in the negative. Merely being a   director of a company is not sufficient to make the   person  liable  under  Section  141  of  the  Act.  A   director in a company cannot be deemed to be in   charge of and responsible to the company for the   conduct of its business. The requirement of Section   141 is that 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.

(c) The answer to Question (c) has to be in the   affirmative. The question notes that the managing  director  or  joint  managing  director  would  be   admittedly  in  charge  of  the  company  and  responsible to the company for the conduct of its   business.  When  that  is  so,  holders  of  such   positions  in  a  company  become  liable  under   Section 141 of the Act. By virtue of the office they   hold  as  managing  director  or  joint  managing   director,  these  persons  are  in  charge  of  and   responsible  for  the  conduct  of  business  of  the   company.  Therefore,  they  get  covered  under   Section 141. So far as the signatory of a cheque   which is dishonoured is concerned, he is clearly   responsible for the incriminating act  and will  be   covered under sub-section (2) of Section 141.”

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14. In Saroj Kumar Poddar    v.   State (NCT of Delhi) and    

anr.15, the  appellant  therein  was  the  Director  of  a  public  

limited company which had issued three cheques in favour of  

respondent 2, who was manufacturer and supplier of chemical  

compounds.  The  cheques  having  been  dishonoured,  the  

complaint came to be filed.  Application for quashing of the  

complaint was filed by the appellant in the High Court.  The  

High Court dismissed the said application.  While setting aside  

the High Court’s order and after referring to SMS Pharma-(1),  

a two-Judge Bench of this Court observed as under:

“14. … … … The appellant did not issue any cheque.   He, as noticed hereinbefore, had resigned from the   directorship of the Company. It may be true that as   to  exactly  on  what  date  the  said  resignation  was   accepted by the Company is not  known, but,  even   otherwise,  there  is  no  averment  in  the  complaint   petitions  as  to  how  and  in  what  manner  the   appellant  was  responsible  for  the  conduct  of  the   business of the Company or otherwise responsible to   it in regard to its functioning. He had not issued any   cheque. How he is responsible for dishonour of the   cheque has not been stated. The allegations made in   para  3,  thus,  in  our  opinion  do  not  satisfy  the   requirements of Section 141 of the Act.”

15 (2007) 3 SCC 693

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This Court further observed that with a view to making a  

Director  of  a  company vicariously  liable  for  the  acts  of  the  

company, it was obligatory on the part of the complainant to  

make specific allegations as are required in law.  

15. The reference having been answered in SMS Pharma-(1)  

individual  cases  were  directed  to  be  listed  before  an  

appropriate Bench for disposal according to law.  Pursuant to  

this order the appeal was placed before a two-Judge Bench of  

this  Court.   The  two-Judge  Bench  of  this  Court  in  SMS  

Pharmaceuticals  Ltd.  (2)    v.  Neeta  Bhalla  16   (“SMS  

Pharma-(2)”)  noted  that  the  High  Court  had  quashed  the  

complaint  against  respondent 1 holding that  the allegations  

contained in the complaint as against respondent are vague  

and indefinite.  The two-Judge Bench observed that on a plain  

reading  of  the  averments  made  in  the  complaint  it  was  

satisfied  that  the  statutory  requirements  as  contemplated  

under  Section  141  of  the  NI  Act  were  not  satisfied,  and,  

therefore, the High Court judgment cannot be faulted.  It must  

be noted that when the attention of this Court was drawn to  16 (2007) 4 SCC 70

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observations  made  in  Saroj  Kumar  Poddar that  the  

complaint  must  not  only  contain  averments  justifying  the  

requirements of Section 141 of the NI Act but must also show  

as  to  how  and  in  what  manner  the  appellant  therein  was  

responsible for the conduct of the business of the company or  

otherwise responsible to it  in regard to its  functioning,  this  

Court  observed  that  a  plain  reading  of  the  said  judgment  

would show that no such general law was laid down therein  

and the observations were made in the context of the said case  

as it was dealing with the contention that although no direct  

averment was made as against the appellant therein fulfilling  

the requirements of Section 141 of the NI Act, but, there were  

other averments which would show that the appellant therein  

was liable therefor.   

16. In N.K. Wahi  it was pleaded by the appellants therein in  

the complaint that M/s. Western India Industries Limited is a  

limited company and the respondents therein and some others  

were  the  Directors/persons  responsible  for  carrying  on  the  

business of the company and their liability shall be joint and  

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several.  The respondents therein filed an application invoking  

Section 482 of the Code.  The High Court quashed the order  

issuing summons on the ground that the evidence does not  

establish that the respondents were either in charge of or were  

responsible to the company for the conduct of business.  In  

the appeal, following SMS Pharma-(1), Sabitha Ramamurthy  

v.  R.B.S.  Channabaasavaradhya17 and  Saroj  Kumar  

Poddar,  a two-Judge Bench of this Court reiterated what is  

stated in the said judgments that Section 141 raises a legal  

fiction by reason of which a person, although is not personally  

liable for commission of such an offence, would be vicariously  

liable therefor.  Such vicarious liability can be inferred against  

the company only  if  the requisite statement is  made in the  

complaint.  It was further observed that before a person can be  

made vicariously liable,  strict compliance with the statutory  

requirements would be insisted.  It is clear that this is a case  

where  the  basic  averments  in  terms  of  Section  141  were  

absent  and the  two-Judge  Bench followed  SMS Pharma-(1)  

17 (2006) 10 SCC 581

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and confirmed the quashing of the complaint.   The relevant  

paragraph of this judgment needs to be quoted.  

“8. To launch a prosecution, therefore,  against the   alleged Directors there must be a specific allegation   in the complaint as to the part played by them in the   transaction. There should be clear and unambiguous   allegation as to how the Directors are in-charge and   responsible  for  the  conduct  of  the  business  of  the   company. The description should be clear. It is true   that  precise  words  from  the  provisions  of  the  Act   need not  be reproduced and the court  can always   come to a conclusion in facts of each case. But still,   in the absence of any averment or specific evidence   the net result would be that complaint would not be   entertainable.”

17. In N. Rangachari  a two-Judge Bench of this Court was  

again dealing with the same question.  Averments made in the  

complaint before the two-Judge Bench were similar in nature  

as the averments made in the complaint in the present case.  

The complainant therein was Bharat Sanchar Nigam Limited  

(BSNL).   Its  case was that  the cheques issued by the Data  

Access  (India)  Limited  in  discharge  of  their  pre-existing  

liabilities  were  dishonoured  for  insufficiency  of  funds.   A  

petition was filed for quashing the complaint by the appellant-

Data Access (India) Limited stating that he was nominated as  

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a  honorary  chairman  of  the  company  without  any  

remuneration  and  was  holding  an  honorary  post  in  the  

company.   He  was  never  assigned  with  the  financial  and  

business activities.  The complaint did not contain adequate  

averments to justify initiation of criminal proceedings against  

him.  The High Court dismissed the petition on the ground  

that the court cannot decide the pleas raised by the appellant  

in a petition filed under Section 482 of the Code.  Those please  

will have to be established in trial.  This Court referred to the  

relevant extracts from Palmer’s Company Law18,  Guide to  

the  Companies  Act  by  A.  Ramaiya19  and Principles  of  

Modern  Company  Law  by  Gower  and  Davies20  and  

expressed that  in the  commercial  world,  a  person having a  

transaction with a company is entitled to presume that the  

Directors of  the company are in charge of  the affairs of  the  

company and it is for the Directors to prove to the contrary at  

the  trial.   This  Court  also  observed  that  a  person  having  

business dealings with the company may not be aware of the  

18 20th Edition 19 16th Edition 20 17th Edition

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arrangement within the company in regard to its management.  

Pertinently,  this  Court  expressed  that  the  decision  of  the  

three-Judge Bench in SMS Pharma-(1) was binding on it. The  

two-Judge Bench understood SMS Pharma-(1) as laying down  

the  law  that  what  is  to  be  looked  into  is  whether  in  the  

complaint,  in  addition  to  asserting  that  accused  are  the  

Directors of the company, it is further alleged that they are in  

charge of and responsible to the company for the conduct of  

the  business  of  the  company.   This  Court  observed  that  

reading  the  complaint,  as  a  whole,  it  was  clear  that  the  

allegations in the complaint were that at the time when two  

dishonoured  cheques  were  issued  by  the  company,  the  

appellants therein were the Directors of the company and were  

in charge of  the affairs of  the company, and,  therefore,  the  

High Court had rightly dismissed the petition.  

18. In  Paresh  P.  Rajda    v.   State  of  Maharashtra  and    

anr.  21  ,  similar  question  arose  before  a  two-Judge  Bench of  

this  Court.   The  High  Court  had  refused  to  quash  the  

21 (2008) 7 SCC 442

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complaint  on  the  ground  that  an  overall  reading  of  the  

complaint showed that specific allegations had been levelled  

against the appellant that he being a responsible officer of the  

company was equally liable and that if it is ultimately found  

that he had, in fact, no role to play, he would be entitled to an  

acquittal.   It  appears  that  thereafter  accused  2  and  4,  the  

Chairman  and  a  Director  respectively  of  the  company  

approached this Court. This Court referred to  SMS Pharma-

(1) and N.  Rangachari and noted a slight  departure in  N.  

Rangachari in favour of the complainant from the view taken  

in  SMS  Pharma-(1) and  further  noted  that  ultimately  the  

entire matter would boil down to an examination of the nature  

of averments made in the complaint.  The two-Judge Bench  

quoted the relevant paragraphs of the complaint in which it  

was stated that accused 2 was the Chairman of the company  

and was responsible for the day-to-day affairs of the company  

and was, therefore, liable to repay the amounts of dishonoured  

cheques.  It was further stated in the complaint that accused 3  

being Joint Managing Director and accused 4, 5 and 6 being  

Directors  of  the  company  are  responsible  officers  of  the  

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company and, therefore, they are liable to repay the amounts  

of the dishonoured cheques.   This Court observed that from  

the High Court judgment, it appears that the question as to  

whether  accused 2  was  responsible  for  the  business  of  the  

company  had  not  been  seriously  challenged.   This  Court  

observed  that  there  were  clear  allegations  against  both  the  

appellants-accused;  that  they  were  officers  of  the  company  

and were responsible for the affairs of the company and that at  

a stage where the trial had not yet started, it is inappropriate  

to quash the proceedings against them.  

19. In Malwa Cotton & Spinning Mills Ltd., the High Court  

had  accepted  the  prayer  of  respondent  1  for  quashing  the  

proceedings initiated against him under Section 138 of the NI  

Act on the ground that he had resigned from the Directorship  

before the cheques were issued.  This Court was of the view  

that whether respondent 1 had resigned before the cheques  

were  issued  involves  factual  dispute.   Referring  to  N.  

Rangachari,  where  it  is  observed  that  a  person  in  the  

commercial  world  having  a  transaction  with  a  company  is  

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entitled to presume that the Directors of the company are in  

charge of the affairs of the company and if any restriction on  

their powers is placed by the Memorandum of Articles of the  

Company, it is for the Directors to establish that in the trial  

this Court allowed the appeal filed by the complainant holding  

that  the  High  Court  was  not  justified  in  quashing  the  

proceedings against respondent 1.  

20. In  K.K.  Ahuja,  where  this  Court  was  considering  a  

similar  question  after  referring  to  SMS  Pharma-(1), SMS  

Pharma-(2), Saroj Kumar Poddar  and N.K. Wahi and other  

relevant  judgments  and  after  referring  to  the  relevant  

provisions of the Companies Act, this Court summarized the  

position under Section 141 of the NI Act as under:

“27. The position under Section 141 of the Act can be   summarised 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”   

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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   

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the  cheque,  disclosing  consent,  connivance  or   negligence.”

21. In  National  Small  Industries  Corporation  Limited,  

this Court was dealing with the same question.  After referring  

to SMS Pharma-(1), SMS Pharma-(2), Saroj Kumar Poddar,  

N.K. Wahi,  N. Rangachari,  Paresh P. Rajda, K.K. Ahuja  

and  other  relevant  judgments,  this  Court  laid  down  the  

following principles:

“(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   

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committed by the company along with averments in   the petition containing that accused were in-charge   of and responsible for the business of the company  and by virtue of their 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  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 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.”

22. In  Rallis India Limited, this Court was dealing with a  

similar issue.  The High Court had allowed application filed  

under Section 482 of the Code and discharged the applicants  

therein.  While setting aside the High Court’s order, this Court  

found that  there  were  averments  in  the  complaint  that  the  

respondents were partners of the firm at the relevant point of  

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time  and  were  looking  after  the  day-to-day  affairs  of  the  

partnership  firm.   This  averment  had  been  specifically  

mentioned  by  the  appellant  in  the  complaint  even  though  

denied by the respondents but the burden of proof that at the  

relevant point of time, the respondents were not the partners,  

lies  specifically  on  them  and  this  onus  is  required  to  be  

discharged by them by leading evidence.  This Court observed  

that  where  there  are  several  disputed  facts  involved  for  

instance when the partnership came into being and when the  

respondents had actually retired from the partnership, etc. the  

ratio of SMS Pharma-(1) can be followed only, after the factum  

that the accused were the Directors or partners of a company  

or a firm respectively at the relevant point of time stands fully  

established.   In  cases,  where  there  are  allegations  and  

counter-allegations  between  the  parties  regarding  the  very  

composition  of  the  firm,  the  rule  of  ‘specific  averment’  laid  

down in SMS Pharma-(1) must be broadly construed.  

23. In  Anita Malhotra, the High Court had dismissed the  

petition filed praying for quashing of the criminal  complaint  

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instituted against the appellant under Section 138 of the NI  

Act.  The appellant claimed to be a non-executive Director of  

the company which had issued the cheques.  The appellant  

claimed  that  she  had  resigned  from  the  company  on  

20/11/1998 while the cheques were issued in the year 2004.  

A two-Judge Bench of this Court held that though it is not  

proper  for  the  High  Court  to  make  a  roving  enquiry  and  

consider the defence of the accused at the stage of a petition  

filed for quashing the complaint,  if any documents, which are  

beyond suspicion or doubt, are placed, it can take them into  

account.   This  Court  looked  into  the  certified  copy  of  the  

annual  return,  which  was  a  public  document  as  per  the  

Companies Act read with Section 74(2) of the Evidence Act and  

held that the appellant had resigned from the Directorship of  

the  company  much  prior  to  the  issuance  of  the  cheques.  

While  setting  aside  the  High  Court’s  order,  this  Court  

reiterated  that  in  case  of  a  Director,  the  complaint  should  

specifically spell out how and in what manner the Director was  

in charge of or was responsible to the company for conduct of  

its business and mere bald statement that he or she was in  

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charge of and was responsible to the company for conduct of  

its business is not sufficient.  This Court observed that in the  

case before it except the mere bald and cursory statement with  

regard to the appellant, the complainant had not specified her  

role  in  the  day-to-day  affairs  of  the  company  and  on  this  

ground alone, the appellant was entitled to succeed.   

24. In A.K. Singhania, while dealing with the same issue a  

two-Judge Bench of this Court observed that it is necessary  

for a complainant to state  in the complaint that the person  

accused was in charge of and responsible for the conduct of  

the business of the company. Although, no particular form for  

making such an allegation is prescribed, and it  may not be  

necessary to reproduce the language of Section 138 of the NI  

Act,  but  a  reading  of  the  complaint  should  show  that  the  

substance of the accusation discloses that the accused person  

was  in  charge  of  and  responsible  for  the  conduct  of  the  

business of the company at the relevant time.  

25. In Mannalal Chamaria, this Court reiterated the above  

observations and observed that  in the averments made before  

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it  there  was  no  specific  or  even  a  general  allegation  made  

against the appellants.  This Court, therefore, dismissed the  

complaint filed against the appellants under Section 138 of the  

NI Act.  

26. It is clear from a perusal of the above decisions that SMS  

Pharma-(1), which is a three-Judge Bench decision, still holds  

the field.  In all subsequent decisions, two-Judge Benches of  

this  Court  have  followed  SMS Pharma-(1).   No  doubt  that  

there is a slight deviation in N. Rangachari  in favour of the  

complainant, but, even in that decision, the two-Judge Bench  

accepts that  SMS Pharma-(1) has a binding force.  In  SMS  

Pharma-(1),  KK Ahuja and  National Small Industries Ltd.  

this Court summarized its conclusions.  We are concerned in  

this  case  with  Directors  who  are  not  signatories  to  the  

cheques.  So far as Directors who are not signatories to the  

cheques or who are not Managing Directors or Joint Managing  

Directors are concerned, it is clear from the conclusions drawn  

in the above-mentioned cases that it is necessary to aver in  

the complaint filed under Section 138 read with Section 141 of  

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the  NI  Act  that  at  the  relevant  time  when the  offence  was  

committed,  the  Directors  were  in  charge  of  and  were  

responsible for the conduct of the business of the company.  

This is a basic requirement.  There is no deemed liability of  

such Directors.

27. This  averment  assumes  importance  because  it  is  the  

basic and essential averment which persuades the Magistrate  

to issue process against the Director. That is why this Court in  

SMS Pharma-(1) observed that the question of requirement of  

averments in a complaint has to be considered on the basis of  

provisions contained in Sections 138 and 141 of the NI Act  

read in the light of the powers of a Magistrate referred to in  

Sections  200  to  204  of  the  Code  which  recognize  the  

Magistrate’s discretion to reject the complaint at the threshold  

if he finds that there is no sufficient ground for proceeding.  

Thus, if this basic averment is missing the Magistrate is legally  

justified in not  issuing process.  But here we are concerned  

with the question as to what should be the approach of a High  

Court when it is dealing with a petition filed under Section 482  

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of the Code for quashing such a complaint against a Director.  

If  this  averment  is  there,  must  the  High Court  dismiss the  

petition as a rule observing that the trial must go on? Is the  

High Court precluded from looking into other circumstances if  

any?  Inherent power under Section 482 of the Code is to be  

invoked  to  prevent  abuse  of  the  process  of  any  court  or  

otherwise to secure ends of justice.  Can such fetters be put  

on the High Court’s inherent powers? We do not think so.  

28. SMS Pharma-(1), undoubtedly, says that it is necessary  

to specifically aver in the complaint that the Director was in  

charge of  and responsible for the conduct of  the company’s  

business at the relevant time when the offence was committed.  

It  says that  this  is  a basic  requirement.    And as we have  

already noted, this averment is for the purpose of persuading  

the Magistrate to issue process. If we revisit SMS Pharma-(1),  

we  find that  after  referring  to  the  various provisions of  the  

Companies Act it is observed that those provisions show that  

what a Board of Directors is empowered to do in relation to a  

particular  company  depends  upon  the  roles  and  functions  

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assigned to Directors as per the memorandum and articles of  

association of the company.  There is nothing which suggests  

that simply by being a Director in a company, one is supposed  

to discharge particular functions on behalf of a company. As a  

Director  he  may  be  attending  meetings  of  the  Board  of  

Directors  of  the  company  where  usually  they  decide  policy  

matters and guide the course of business of a company.  It  

may be that a Board of Directors may appoint sub-committees  

consisting  of  one  or  two  Directors  out  of  the  Board  of  the  

company  who  may  be  made  responsible  for  the  day-to-day  

functions of the company.  This Court further observed that  

what  emerges  from this  is  that  the  role  of  a  Director  in  a  

company is a question of fact depending on the peculiar facts  

in each case and that there is no universal rule that a Director  

of a company is in charge of its everyday affairs.   What follows  

from this is that it cannot be concluded from SMS Pharma-(1)  

that the basic requirement stated  therein is sufficient in all  

cases and whenever such an averment is there, the High Court  

must  dismiss  the  petition  filed  praying  for  quashing  the  

process.   It must be remembered that the core of a criminal  

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case are its  facts and in factual  matters there are no fixed  

formulae  required  to  be  followed   by  a  court  unless  it  is  

dealing with an entirely procedural matter.  We do not want to  

discuss  ‘the  doctrine  of  Indoor  Management’  on  which  

submissions have been advanced.  Suffice it to say, that just  

as  the  complainant  is  entitled  to  presume   in  view  of  

provisions of the  Companies  Act  that  the  Director  was  

concerned  with  the  issuance  of  the  cheque,  the  Director  is  

entitled  to  contend  that  he  was  not  concerned  with  the  

issuance of cheque  for  a  variety  of  reasons.  It is for the  

High  Court  to  consider  these  submissions.    The High  

Court may in a given case on an overall reading of a complaint  

and  having  come  across  some  unimpeachable  evidence  or  

glaring  circumstances  come  to   a   conclusion   that   the  

petition  deserves  to  be  allowed  despite  the  presence  of  

the basic averment.  That is the reason why in some cases,  

after  referring  to  SMS  Pharma-(1),  but  considering  overall  

circumstances of the case, this Court has found that the basic  

averment was insufficient,  that something more was needed  

and has quashed the complaint.  

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29. When a petition is filed for quashing the process, in a  

given case, on an overall reading of the complaint, the High  

Court may find that the basic averment is sufficient, that it  

makes out a case against the Director; that there is nothing to  

suggest  that  the  substratum  of  the  allegation  against  the  

Director is destroyed rendering the basic averment insufficient  

and that since offence is made out against him, his further  

role can be brought out in the trial.  In another case, the High  

Court may quash the complaint despite the basic averment.  It  

may come across some unimpeachable evidence or acceptable  

circumstances which may in its opinion lead to a conclusion  

that  the  Director  could  never  have  been  in  charge  of  and  

responsible for the conduct of the business of the company at  

the  relevant  time and therefore  making him stand the  trial  

would be abuse of the process of court as no offence is made  

out against him.

30. When in view of the basic averment process is issued the  

complaint  must  proceed against  the  Directors.   But,  if  any  

Director wants the process to be quashed by filing a petition  

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under Section 482 of the Code on the ground that only a bald  

averment is made in the complaint and that he is really not  

concerned with the issuance of the cheque, he must in order  

to  persuade  the  High  Court  to  quash  the  process  either  

furnish some sterling uncontrovertible material or acceptable  

circumstances to substantiate his contention.  He must make  

out a case that making him stand the trial would be abuse of  

the process of court.  He cannot get the complaint quashed  

merely on the ground that apart from the basic averment no  

particulars are given in the complaint about his role, because  

ordinarily the basic averment would be sufficient to send him  

to trial and it could be argued that his further role could be  

brought out in the trial.  Quashing of a complaint is a serious  

matter.  Complaint  cannot  be  quashed  for  the  asking.  For  

quashing of a complaint it must be shown that no offence is  

made out at all against the Director.  

31. In this connection, it would be advantageous to refer to  

Harshendra  Kumar  D    v.   Rebatilata  Koley  & Ors.,  22    

where process was issued by the Magistrate on a complaint  22 (2011) 3 SCC 351

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filed under Section 138 read with Section 141 of the NI Act.  

The  appellant  therein  challenged  the  proceeding  by  filing  

revision application under Section 397 read with Section 401  

of the Code.  The case of the appellant-Director was that he  

had resigned from Directorship.  His resignation was accepted  

and notified to the Registrar of Companies.  It was averred in  

the complaint that the appellant was responsible for the day-

to-day affairs  of  the  company and it  was on his  and other  

Directors  assurance  those  demand  drafts  were  issued.  

Despite  this  averment,  this  Court  quashed  the  complaint  

taking  into  account  resolution  passed  by  the  company,  

wherein it was reflected that the appellant had resigned from  

the post of Director much prior to the issuance of cheque and  

the  fact  that  the  company  had  submitted  Form-32.  It  was  

argued before this Court that the documents furnished by the  

accused could not have been taken into account.  Repelling  

this submission this Court observed as under:

“24. In Awadh Kishore Gupta3 this Court while  dealing with the scope of power under Section 482 of   the Code observed: (SCC p. 701, para 13)

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“13. It is to be noted that the investigation   was not complete and at that stage it was  impermissible  for  the  High  Court  to  look  into materials,  the acceptability of  which   is  essentially  a  matter  for  trial.  While   exercising  jurisdiction  under  Section  482  of the Code, it  is  not  permissible for the   court to act as if it was a trial Judge.”

25. In  our  judgment,  the  above  observations   cannot be read to mean that in a criminal case where   trial  is  yet  to  take  place  and the matter  is  at  the   stage of issuance of summons or taking cognizance,   materials relied upon by the accused which are in   the  nature  of  public  documents  or  the  materials   which  are  beyond  suspicion  or  doubt,  in  no   circumstance, can be looked into by the High Court in   exercise of its jurisdiction under Section 482 or for   that matter in exercise of revisional jurisdiction under   Section 397 of the Code. It is fairly settled now that   while  exercising inherent  jurisdiction under  Section   482 or  revisional  jurisdiction  under  Section 397 of   the Code in a case where complaint is sought to be   quashed,  it  is  not  proper  for  the  High  Court  to   consider the defence of the accused or embark upon   an enquiry in respect  of  merits  of  the accusations.   However, in an appropriate case, if on the face of the   documents — which are beyond suspicion or doubt   — placed by the accused,  the accusations against   him cannot stand, it would be travesty of justice if   the accused is relegated to trial and he is asked to   prove  his  defence before  the  trial  court.  In  such a   matter, for promotion of justice or to prevent injustice   or abuse of process, the High Court may look into the   materials  which  have  significant  bearing  on  the   matter at prima facie stage.

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26. Criminal prosecution is a serious matter; it   affects  the liberty of  a person.  No greater  damage   can  be  done  to  the  reputation  of  a  person  than   dragging him in a criminal case. In our opinion, the   High  Court  fell  into  grave  error  in  not  taking  into   consideration the uncontroverted documents relating   to  the  appellant’s  resignation  from  the  post  of   Director of the Company. Had these documents been  considered by the High Court,  it  would have been   apparent  that  the  appellant  has  resigned  much   before the cheques were issued by the Company.”

32. As  already  noted  in  Anita  Malhotra,  relying  on  

Harshendra Kumar, this Court quashed the complaint filed  

under Section 138 read with Section 141 of the NI Act relying  

on the certified copy of the annual return which was a public  

document as per the Companies Act read with Section 74(2) of  

the  Evidence  Act,  which  established  that  the  

appellant/Director therein had resigned from the Directorship  

much prior to the issuance of cheques.  This was done despite  

the  fact  that  the  complaint  contained  the  necessary  

averments.  In our opinion, therefore, there could be a case  

where  the  High Court  may feel  that  filing  of  the  complaint  

against all Directors is abuse of the process of court.  The High  

Court  would  be  justified  in  such  cases  in  quashing  the  

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complaint  after  looking  into  the  material  furnished  by  the  

accused.  At that stage there cannot be a mini trial or a roving  

inquiry.  The material on the face of it must be convincing or  

uncontrovered  or  there  must  be  some  totally  acceptable  

circumstances requiring no trial to establish the innocence of  

the Directors.

33. We may summarize our conclusions as follows:

a) Once in a complaint filed under Section 138  

read with Section 141 of the NI Act the basic  

averment  is  made  that  the  Director  was  in  

charge of  and responsible  for  the conduct of  

the  business of  the company at  the relevant  

time  when  the  offence  was  committed,  the  

Magistrate  can  issue  process  against  such  

Director;

b) If a petition is filed under Section 482 of the  

Code for quashing of such a complaint by the  

Director, the High Court may, in the facts of a  

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particular  case,  on an overall  reading  of  the  

complaint,  refuse  to  quash  the  complaint  

because  the  complaint  contains  the  basic  

averment  which  is  sufficient  to  make  out  a  

case against the Director.

c) In  the  facts  of  a  given  case,  on  an  overall  

reading of the complaint, the High Court may,  

despite  the  presence  of  the  basic  averment,  

quash the complaint because of the absence of  

more particulars about role of the Director in  

the  complaint.   It  may  do  so  having  come  

across some unimpeachable,  uncontrovertible  

evidence which is beyond suspicion or doubt  

or totally acceptable circumstances which may  

clearly  indicate  that  the  Director  could  not  

have  been  concerned  with  the  issuance  of  

cheques  and  asking  him  to  stand  the  trial  

would  be  abuse of  the  process  of  the  court.  

Despite the presence of basic averment, it may  

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come to a conclusion that no case is made out  

against the Director.  Take for instance a case  

of a Director suffering from a terminal illness  

who was bedridden at the relevant time or a  

Director  who  had  resigned  long  before  

issuance  of  cheques.   In  such  cases,  if  the  

High Court is convinced that prosecuting such  

a  Director  is  merely  an  arm-twisting  tactics,  

the High Court may quash the proceedings.  It  

bears repetition to state that to establish such  

case  unimpeachable,  uncontrovertible  

evidence which is beyond suspicion or doubt  

or some totally acceptable circumstances will  

have to be brought to the notice of the High  

Court.   Such  cases  may  be  few  and  far  

between  but  the  possibility  of  such  a  case  

being  there  cannot  be  ruled  out.   In  the  

absence  of  such  evidence  or  circumstances,  

complaint cannot be quashed;

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d) No  restriction  can  be  placed  on  the  High  

Court’s powers under Section 482 of the Code.  

The High Court always uses and must use this  

power sparingly and with great circumspection  

to prevent inter alia the abuse of the process of  

the Court.   There are no fixed formulae to be  

followed by the High Court in this regard and  

the exercise of  this power depends upon the  

facts  and  circumstances  of  each  case.   The  

High Court at that stage does not conduct a  

mini  trial  or  roving  inquiry,  but,  nothing  

prevents  it  from  taking  unimpeachable  

evidence  or  totally  acceptable  circumstances  

into  account  which  may  lead  it  to  conclude  

that  no  trial  is  necessary  qua  a  particular  

Director.

34. We will examine the facts of the present case in light of  

the above discussion.  In this case, the High Court answered  

the first question raised before it in favour of the respondents.  

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The  High  Court  held  that  “in  the  complaint  except  the  

averments that the Directors were in charge of and responsible   

to the company at the relevant time, nothing has been stated as   

to  what  part  was  played  by  them  and  how  they  were   

responsible regarding the finances of the company, issuance of   

cheque and control over the funds of the company”.  After so  

observing, the High Court quashed the proceedings as against  

the respondents.  In view of this conclusion, the High Court  

did  not  go  into  the  second  question  raised  before  it  as  to  

whether  the  Director,  who  has  resigned  can  be  prosecuted  

after  his  resignation  has  been  accepted  by  the  Board  of  

Directors of the company.  Pertinently, in the application filed  

by the respondents, no clear case was made out that at the  

material time, the Directors were not in charge of and were not  

responsible for the conduct of the business of the company by  

referring  to  or  producing  any  uncontrovertible  or  

unimpeachable evidence which is beyond suspicion or doubt  

or any totally acceptable circumstances.  It is merely stated  

that Sidharth Mehta had resigned from the Directorship of the  

company  on  30/9/2010  but  no  uncontrovertible  or  

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unimpeachable evidence was produced before the High Court  

as was done in Anita Malhotra to show that he had, in fact,  

resigned  long  before  the  cheques  in  question  were  issued.  

Similar is the case with Kanhaiya Lal Mehta and Anu Mehta.  

Nothing was produced to substantiate the contention that they  

were not in charge of and not responsible for the conduct of  

the  business  of  the  company  at  the  relevant  time.  In  the  

circumstances, we are of the opinion that the matter deserves  

to be remitted to the High Court for fresh hearing.  However,  

we are inclined to confirm the order passed by the High Court  

quashing  the  process  as  against  Shobha  Mehta.   Shobha  

Mehta is stated to be an old lady who is over 70 years of age.  

Considering  this  fact  and  on  an  overall  reading  of  the  

complaint in the peculiar facts and circumstances of the case,  

we feel that making her stand the trial would be an abuse of  

process of  the court.   It  is  however,  necessary for the High  

Court to consider the cases of other Directors in light of the  

decisions considered by us and the conclusions drawn by us  

in  this  judgment.   In  the  circumstances,  we  confirm  the  

impugned order to the extent it quashes the process issued  

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against Shobha Mehta, an accused in C.C. No.24035 of 2011.  

We set aside the impugned order to the extent it quashes the  

process  issued  against  other  Directors  viz.  Kanhaiya  Lal  

Mehta,  Anu Mehta  and  Siddharth    Mehta.   We  remit  the  

matter to the High Court.  We request the High Court to hear  

the parties and consider the matter afresh.  We are making it  

clear that we have not expressed any opinion on the merits of  

the  case  and  nothing  said  by  us  in  this  order  should  be  

interpreted as our expression of opinion on the merits of the  

case.   The  High  Court  is  requested  to  consider  the  matter  

independently.  Considering the fact that the complaints are of  

2011, we request the High Court to dispose of the matter as  

expeditiously as possible and preferably within six months.   

35. The criminal appeals are disposed of in the afore-stated  

terms.     

...………………………….J. [Ranjana Prakash Desai]

…………………………….J. [N.V. Ramana]

New Delhi October 17, 2014.  

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