NATIONAL HOUSING BANKversusBHERUDAN DUGAR HOUSING FINANCE LTD. & ORS. ETC.

                   [2024] 8 S.C.R. 1 : 2024 INSC 566

                      National Housing Bank
                                v.
           Bherudan Dugar Housing Finance Ltd. & Ors. Etc.
                 (Criminal Appeal No. 3176-3177 of 2024)
                                01 August 2024
           [Abhay S. Oka* and Augustine George Masih, JJ.]

                            Issue for Consideration
       On a complaint filed u/s. 200 CrPC, wherein the Magistrate took
       cognizance of the complaint for the offence u/s. 29A (i) read with
       s. 50 and punishable u/s. 49 (2A) of the 1987 Act against the first
       respondent-company, second accused-Managing director and other
       five accused as directors, whether the High Court was justified in
       quashing the complaint in its entirety, holding that the requirements
       of sub-Section (1) of s. 50 of the 1987 Act are similar to the
       requirements incorporated in s. 141 of the Negotiable Instruments
       Act, 1881, which were not complied with by the complainant.

                                  Headnotes†
       National Housing Bank Act, 1987 – ss. 29A rw s. 50 – Offence
       by companies – Vicarious liability of the Directors – Averment
       in the complaint, if essential requirement – Magistrate
       taking cognizance of the complaint for the offence u/s. 29A
       (i) rw s. 50 and punishable u/s. 49 (2A) against the first
       accused-company, second accused-Managing director and
       other five accused as directors – High Court quashed the
       complaint in its entirety – Justification:
       Held: Unless assertions, as required by sub-section (1) of s. 50,
       are made, vicarious liability of the Directors of the first accused
       company not attracted – No assertions made that the second to
       seventh accused, at the time of the commission of the offence,
       were in charge of, and responsible to the first accused company for
       the conduct of its business – In the absence of the averments, the
       trial court could not have taken cognizance of the offence against
       the third to seventh accused, who are allegedly the directors of
       the first accused company – However, the second accused being
       the Managing Director, would be in charge of the company and
       responsible to the company for its business, thus, no justification

* Author
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     for quashing the complaint against the second accused – First
     respondent is a company – No reasons have been assigned to
     quash the complaint against the first accused – Impugned order
     is modified – Complaint quashed as against the third to seventh
     accused, however, the complaint to proceed against the first and
     second accused. [Paras 6, 8, 9]

                             Case Law Cited
     S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr. [2005]
     Suppl. 3 SCR 371 : (2005) 8 SCC 89 – referred to.

                               List of Acts
     Code of Criminal Procedure, 1973; National Housing Bank Act,
     1987; Negotiable Instruments Act, 1881.

                            List of Keywords
     Offence by companies; Vicarious liability of the Directors;
     Averment in the complaint; Quashing of the complaint.

                           Case Arising From
     CRIMINAL APPELLATE JURISDICTION: Criminal Appeal Nos.
     3176-3177 of 2024
     From the Judgment and Order dated 12.07.2017 of the High Court of
     Judicature at Madras in CROP Nos. 1593 and 10570 of 2011
                        Appearances for Parties
     Navin Prakash, Adv. for the Appellant.
     Dr. Joseph Aristotle S, Sr. Adv., Ms. Priya Aristotle, Ms. Nikita Patra,
     Ashish Yadav, Advs. for the Respondents.
                Judgment / Order of the Supreme Court

                                Judgment
     Abhay S. Oka, J.
     FACTS
1.   The appellant filed a complaint under Section 200 of the Code of
     Criminal Procedure, 1973, alleging the commission of an offence of
     violating the provisions in Section 29A of the National Housing Bank
[2024] 8 S.C.R.                                                           3

                     National Housing Bank v.
           Bherudan Dugar Housing Finance Ltd. & Ors. Etc.

     Act, 1987 (for short, the ‘1987 Act’). The learned Magistrate took
     cognizance of the complaint for the offence under Section 29A (i) read
     with Section 50 and punishable under Section 49(2A) of the 1987
     Act. Section 49(2A) provides for a minimum sentence of one year,
     which may extend to five years. For convenience, we will refer to the
     parties as per their status before the Trial Court. The first accused is
     a company. The second accused was described in the complaint as
     the Managing Director of the first accused company, and the other five
     accused were described as the Directors. By the impugned judgment,
     the High Court has proceeded to quash the complaint in its entirety.
     The High Court held that the requirements of sub-Section (1) of Section
     50 of the 1987 Act are similar to the requirements incorporated in
     Section 141 of the Negotiable Instruments Act, 1881 (for short, ‘the
     NI Act’), which were not complied with by the complainant.
     SUBMISSIONS
2.   The learned counsel appearing for the appellant has taken us
     through the averments made in the complaint and the provisions
     of the said Act of 1987. He submitted that on a plain reading of
     the complaint, a violation of the provisions in Section 29A (i) of the
     1987 Act was made out. Therefore, there was no reason to quash
     the complaint. Inviting our attention to the complaint, he pointed out
     that the second accused was described as the Managing Director
     of the first respondent and, therefore, he was in charge of and
     was responsible to the first respondent company for the conduct
     of the company’s business. He submitted that there were sufficient
     averments for implicating the other accused.
3.   The learned counsel appearing for the accused supported the
     impugned judgment and submitted that averments as required
     by sub-Section (1) of Section 50 of the 1987 Act have not been
     incorporated in the complaint.
     REASONS
4.   Section 50 of the 1987 Act reads thus:
           “50. Offences by Companies.—(1) Where an offence
           has been committed by 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
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          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 such person liable to any punishment provided
          in this Act, 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.
          (2) Notwithstanding anything contained in sub-section (1),
          where an 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.”
                                                   (emphasis added)
     There is no dispute that sub-Section (1) of Section 50 is pari materia
     with Section 141 of the NI Act.
5.   Paragraph 9 of the complaint contains relevant averments on which
     reliance was placed by the learned counsel for the complainant.
     Paragraph 9 reads thus:
          “The complainant submits that the Accused No. 1 herein
          is a Limited Company, having its registered Office at
          Nos. 73/1A, Jermiah Road, Vepery, Chennai-600007. It
          was incorporated on 17-12-1996 as a Limited Company
          under the Companies Act, 1956 and obtained Certificate
          for commencement of Business on 22.01.1997 from the
          Additional registrar of Companies, Tamilnadu. The Xerox
[2024] 8 S.C.R.                                                              5

                        National Housing Bank v.
              Bherudan Dugar Housing Finance Ltd. & Ors. Etc.

             Copy of the Memorandum and Articles of Association
             of the Accused Company is filed herewith. Accused No.
             2 is the Managing Director and the Accused 3 to 7 are
             the Directors of the First Accused Company and they
             are conducting the business of the company and are
             associated with the common aspect of their said business
             and are also responsible for the Management of the First
             Accused Company. They are also looking after the day
             today affairs of the First Accused Company and they are
             jointly and severally responsible for the conduct or for
             omission regarding the conduct of the business of the
             First Accused Company.”
6.    Hence, there were no assertions made that the second to seventh
      accused, at the time of the commission of the offence, were in charge
      of, and responsible to the first accused company for the conduct of
      its business. Unless assertions, as required by sub-Section (1) of
      Section 50, are made, vicarious liability of the Directors of the first
      accused company is not attracted.
7.    A Bench of three Hon’ble Judges of this Court had an occasion to
      interpret Section 141 of NI Act in the case of S.M.S. Pharmaceuticals
      Ltd. v. Neeta Bhalla and Anr.1 In Paragraph 1, the points for
      determination were framed which read thus:
             “This matter arises from a reference made by a two-Judge
             Bench of this Court for determination of the following
             questions by a larger Bench:
             “(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 fulfil 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,


1    [2005] Supp. 3 SCR 371 : (2005) 8 SCC 89
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         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.”
     The conclusions are in paragraph 19, which reads thus:
         “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.
         (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
[2024] 8 S.C.R.                                                               7

                        National Housing Bank v.
              Bherudan Dugar Housing Finance Ltd. & Ors. Etc.

                   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.”
                                                       (emphasis added)
8.   Hence, in the absence of the averments as contemplated by sub-
     section (1) of Section 50 of the 1984 Act in the complaint, the Trial
     Court could not have taken cognizance of the offence against the
     third to seventh accused, who are allegedly the directors of the first
     accused company. However, the second accused being the Managing
     Director, would be in charge of the company and responsible to
     the company for its business. Therefore, there was no justification
     for quashing the complaint against the second accused. The first
     respondent is a company. No reasons have been assigned to quash
     the complaint against the first accused.
9.   Hence, the appeals partly succeed, and we pass the following order:
     (a)     The impugned order is modified, and it is directed that complaint
             C.C. No. 4331 of 2010 filed in the Court of the Judicial Magistrate,
             Egmore at Chennai shall stand quashed as against the third
             to seventh accused shown therein. However, the complaint
             shall proceed according to the law against the first and second
             accused.

     (b)     The Appeals are partly allowed on the above terms.

     Result of the case: Appeals partly allowed.



     †
         Headnotes prepared by: Nidhi Jain