Holding

A complaint must specifically aver that the person was in charge of and responsible for the conduct of the company's business; mere director status is insufficient, and since the complaint did contain such averments, the proceedings cannot be quashed.

Summary

Tata Finance Ltd filed a complaint under Section 138 of the Negotiable Instruments Act alleging that two cheques issued by a company were dishonoured. Notice was served on the company, its Chairman (Paresh P. Rajda) and a director. The Chairman moved an application under Section 395 CrPC to quash the proceedings, contending that the complaint made no specific allegation against him. Both the Magistrate and the High Court rejected the application, holding that the complaint specifically named him as a responsible officer. The Supreme Court examined whether a complaint must expressly aver that a director was in charge of the company's business to invoke liability under Section 141, and affirmed that such specific averments are essential. Finding that the complaint did contain such averments, the Court held that the proceedings could not be quashed at the pre‑trial stage and dismissed the appeals.

Issues considered

Whether a complaint under Section 138/141 of the Negotiable Instruments Act must specifically aver that a director or chairman was in charge of and responsible for the conduct of the company's business.
Whether mere status as a director or chairman makes a person liable under Section 141 in the absence of such specific averments.
Whether the proceedings against the Chairman could be quashed at the pre‑trial stage under Section 395 CrPC.

Legislation cited

Code of Criminal Procedure, 1973s. 395
Negotiable Instruments Act, 1881s. 138, s. 141

Subjects

Negotiable Instruments ActSection 138Section 141director liabilityresponsible officercheque bouncecriminal procedureSection 395quashing of proceedingscorporate offence

Judgment

[2008) 8 S.C.R. 1191

PARESH P. RAJDA A
II.
STATE OF MAHARASHTRA & ANR.
(Criminal Appeal No. 921 of 2008)
MAY 16, 2008
B
,.. [TARUN CHATTERJEE AND HARJIT SINGH BEDI, JJ.]

Negotiable Instruments Act, 1881, sections 138 and 141:
Dishonour of cheques - Notice summoning accused,
Chairman of a company, to appear before Court - Accused c
filing application for quashing of proceedings before the High
Court stating that no case for summoning has been made out
against him in the complaint - High Court directing the Mag-
istrate to decide the application - Application dismissed by
..,
Magistrate - Accused filed another application before High D
•
Court - Dismissed by the High Court holding that specific
a/legation had been levelled against him - Correctness of -
Held; Liability of director/Chairman of a company could be
fixed only after examining nature of averments made in the
complaint and as to whether specific allegation had been lev- E
elled against accused person or not - A perusal of averments
made in the complaint in the instant case would show that spe-
cific allegations against the accused to the effect that they were
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responsible officers of the company made in the complaint -
Moreover, trial has not yet been started, therefore, it would be F
inappropriate to pass any order about quashing of the pro-
ceedings - Code of Criminal Procedure, 1973 - s. 395.
In connection with business dealing, accused-appel-
lant had issued two cheques for certain amount in favour
of a company. Since the cheques were dishonoured by· G
the bank with certain remarks, notice was issued to ac-
cused No.1, the company, accused No.2, the appellant,
Chairman of the Company and accused No.4, appellant
in connected appeal, a Director of the company. It was
1191 H
1192 SUPREME COURT REPORTS [2008] 8 S.C.R.

A only after issuance of non-bailable warrants against the
accused, they appeared before the Court. The accused-
appellant moved an application avering therein that no
case for summoning had been made out against him as
no overt act with regard to the issuance of dishonoured
B cheques had been attributed to him. The Magistrate dis- ,l
missed the application holding that the process under
~

Section 395 Cr.P.C. had already been issued. The High
Court held that specific allegations had been levelled
against him as being a responsible officer of the accused
c Company and he, was therefore equally liable. Hence, the
present appeals.
Accused-appellants contended that no allegation
whatsoever had been made against him and he had been
arrayed in a mechanical manner, merely because he hap-
D pened to be Chairman/Director of the company; that if an
I
offence was 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, would be deemed to be
E guilty of the offence and would be liable to be proceeded ,
against and as no such allegations had been made in the
complaint, the issuance of process against him was not
justified.
~
Respondents submitted that it was not possible at
F this stage and without evidence to reach a conclusion as
to the liability of the appellant and it was, therefore, ap-
propriate that the matter be left to trial, as had been ob-
served by the High Court; that the allegations that the
accused were in fact, responsible officers of the Company
G and were also conducting its day-to-day activities, had
been specifically made in the complaint; that a great deal
of material had been put on record to show that the ac-
cused company and its officers had issued several
cheques to other organizations as well, which too had
H
PARESH P. RAJDA v. STATE OF 1193
MAHARASHTRA
~
bounced, and that huge sums were due from the Com- A
pany on that account and, they being habitual offenders,
were not entitled to any relief.
Dismissing the appeal, the Court
HELD: 1. In S. M. S Pharmaceuticals vs. Neeta Bhalla*, B
a three Judge Bench of this Court examined the scope
...
... and ambit of Section 141 of the Negotiable Instruments
Act and the liability created with respect to the Directors
and other persons responsible for the affairs of the com-
pany. As this matter had come before the three-Judge c
Bench on a reference, the Bench reverted the matter for a
discussion on facts to a Bench of two-Judges. The mat-
ter was again examined by the Bench and it was found
that the necessary averments had been made in the com-
-;
plaint so as to attract the provisions of Section 141 of the
D
Act. The matter came up yet again for consideration in
--< the case of N.K. Wahi vs. Shekhar Singh & Ors.**, which
reiterated the earlier view and held that where there were
no clear averment in the complaint or the evidence with
regard to the role played by the Directors and as to
whether and they were in charge and responsible for the E
conduct of the affairs of the company, it would not be
possible to maintain the prosecution against them and
they were entitled to acquittal. It will be clear from the afore
1
quoted judgments that the entire matter would boil down
to an examination of the nature of averments made in the F
complaint. (Paras 5, 6, 7 & 8) [1198- D & E; 1199-C,D & E]
*S. M. S Pharmaceuticals vs. Neeta Bhalla & Anr. (2005)8
SCC 89; S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla & Anr.
(2007) 4 SCC 70 and **N.K. Wahi vs. Shekhar Singh & Ors.
G
;. (2007) 9 sec 481 - relied on.
-+
2. A perusal of paragraphs '5' and '8' of the complaint
would show that accused No.2 is the Chairman of the
Company, and as per the impugned judgment of the High
I Court, the question of his responsibility for the business H
_;

~
1194 SUPREME COURT REPORTS [2008] 8 S.C.R.

A of the Company has not been seriously challenged. The
Court nonetheless, found clear allegations against both
the accused/appellants to the effect that they were offic-
ers and responsible for the affairs of the company. This
Court is of the opinion that at a stage where the trial has
B not yet started, it would be in3ppropriate to quash the pro-
ceedings against them in the light of the observations of
this Court in the earlier cases. (Para - 9) [1200- D & E]
CRIMINALAPPELLATE JURISDICTION: Criminal Appeal
No. 921 of 2008
c
From the Judgment and final Order dated 20.12.2005 of
the High Court of Judicature at Bombay in Crl. Application No.
5311/2004
Bhaskar P. Gupta, Pradip Ghosh, G.S. Chatterjee, Raja
D Chatterjee and Sachin Das for the Appellant.
Amar Dave, Nandini Gore and Ravindra KeshavraoAdsure
for the Respondents.
The Judgment of the Court was delivered by
E HARJIT SINGH BEDl,J. 1. Leave granted.
2. This judgment will dispose off Criminal Appeals arising
out of SLP (Crl.) Nos.3074 and 3075 of 2006. The facts have
been taken from the record of SLP (Crl.) No. 3074 of 2006.
F They are as under:
3. Tata Finance Limited, which had commercial dealings
with the accused, filed a complaint under Section 138 of the
Negotiable Instruments Act, 1881 (hereinafter called the "Act")
alleging that the accused had issued two cheques dated 25th
G November 2001 and 181h December 2001, each for Rupees
One Lakh, which had been dishonoured on 201n December 2001
with the remarks "Exceeds Arrangements". Notice was issued
, to accused No.1 i.e. the Company, including accused No.2
Paresh P.Rajda, the Chairman and accused No.4 Vijay Shroff,
H a director of the Company and they appeared reluctantly be-
PARESH P. RAJDA v. STATE OF 1195
MAHARASHTRA [HARJIT SINGH BEDl,J.]
.. fore the court after bailable warrants had been issued. Accused A
Paresh Rajda thereupon moved an application that as per the
averments made in the complaint itself, no case for summoning
him had been made out as no overt act with regard to the issu-
ance of the dishonoured cheques had been attributed to him.
The High Court, however, vide its order dated 9th June 2004 B
directed that the application under Section 395 of the Code of
Criminal Procedure, 1974 which had already been made be-
fore the Metropolitan Magistrate be decided at the first instance.
The Magistrate, however, rejected the application on 181h Oc-
tober 2004 holding that he had no jurisdiction in the matter, as c
process under Section 395 of the Code had already been is-
sued. It is in this circumstance that the accused once again
moved the High Court. The High Court in its order dated 201h
December 2005 held that the argument that the accused had
been arrayed as such merely because he was a Director of the
D
Company was wrong inasmuch as an over-all reading of the
complaint showed that specific a;iegations had been levelled
against him as being a responsible officer of the accused Com-
pany and therefore equally liable, and that if it was ultimately
found that the accused had, in fact, no role to play, he would be
entitled to an acquittal. The petition was accordingly dismissed. E
It is in this background that the present appeal is before us.

4. The learned counsel for the appellant has argued that a
... perusal of the complaint would show that no allegation whatso-
ever had been made against the accused and he had been F
arrayed in a mechanical manner, merely because he happened
to be a Director of the company. He has, in particular, referred
us to the provisions of Section 141 of the Act that if an offence
was committed by a company, every person, who, at the time
the offence was committed, was in charge of, and was respon-
G
., sible to the company for the conduct of the business of the com-
pany, would be deemed to be guilty of the offence and would be
liable to be proceeded against and as no such allegations had
...' been made in the complaint, the issuance of process against
the accused was not justified. In support of this argument, he
H
~- --

1196 SUPREME COURT REPORTS [2008] 8 S. C.R.

A has placed reliance on S. M. S.Pharmaceuticals Ltd. vs. Neeta ...
Bhalla & Anr. (2005) 8 SCC 89 and N.K. Wahi vs. Shekhar
Singh & Ors. (2007) 9 SCC 481. The learned counsel for the
respondents has, however, submitted that it was not possible
at this stage and without evidence to reach a conclusion as to
B the liability of the appellant and it was, therefore, appropriate
that the matter be left to trial, as had been observed by the High
Court. The learned counsel has also drawn our attention to para- •
graphs 2 and 8 of the complaintto contend that the allegations
that the accused were, in fact, responsible officers of the Com-
c pany and were also conducting its day-to-day activities, had
been specifically made. It has also been pointed out that a great
deal of material had been put on record to show that the ac-
cused company and its officers had issued several cheques to
other organizations as well, which too had bounced, and that
huge sums were due from the Company on that account and,
D
they being habitual offenders, were not entitled to any relief. The
learned counsel has relied upon S.M.S.Pharmaceuticals Ltd.
vs. Neeta Bhalla & Anr. (2007) 4 SCC 70, Everest Advertising
(P) Ltd. vs. State, Govt of NCT of Delhi & Ors. (2007) 5 SCC
54 and N.Rangachar vs. Bharat Sanchar Nigam Ltd. (2007) 5 I
E sec 108 in support of his submissions.
5. We have gone through the judgments cited by the
learned counseL In S. M. S Pharmaceuticals [(2005)8 SCC 89], \ .. ~

a three Judge Bench of this Court examined the scope and )r \W..!'

F ambit of Section 141 of the Act and the liability created with Jiii
respec! to the Directors and other persons responsible for the
affairs of the company. Three questions were posed:
"(a) Whether for purposes of Section 141 of the
Negotiable Instruments Act, 1881, it is sufficient if
G the substance of the allegation read as a whole fulfill I-

the requirements of the said section and it is not
necessary to specifically state in the complaint that
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,.
"

the person accused was in charge of, or responsible
for, the conduct of the business of the company.
H
PARESH P. RAJDA v. STATE OF 1197
MAHARASHTRA [HARJIT SINGH BEDl,J.]

(b) Whether a director of a company would be deemed A
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 B
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 forconduct of its business could be c
proceeded against."

The above questions were answered in the following terms:
(a) It is necessary to specifically aver in a complaint
under Section 141 that at the time offence was D
~
committed, the person accused was in charge of,
and responsible for the conduct of business of the
company. This averments is an essential requirement
of Section 141 and has to be made in a complaint.
Without this averment being made in a complaint, E
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 F
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 b·e made liable should be in charge of and G
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.
H
1198 SUPREME COURT REPORTS [2008] 8 S.C.R.

A (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
B 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
c 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."
D 6. As this matter had come before the three-Judge Bench
on a reference, the Bench reverted the matter for a discussion
on facts to a Bench of two-Judges. It was this matter which was
again examined by the Bench and reported as
S.M.S.Pharmaceuticals Ltd. (2007) 4 SCC 70 and it was found
E that the necessary averments had been made in the complaint
so as to attract the provisions of Section 141 of the Act. The
appeal filed by the company was accordingly dismissed. This
matter once again came up for consideration in Rangachari's
case (supra) and in paragraph 21 it was observed:
F "A person normally having business or commercial
dealings with a company, would satisfy himself about its
creditworthiness and reliability by looking at its promoters
and Board of Directors and the nature and extent of its
business and its memorandum or articles of association.
G Other than that, he may not be aware of the arrangements
within the company in regard to its management, daily
routine, etc. Therefore,, when a cheque issued to him by
the company is dishonoured, he is expected only to be
aware generally of who are in charge of the affairs of the
H company. It is not reasonable to expect him to know whether

/
PARESH P. RAJDA v. STATE OF 1199
MAHARASHTRA [HARJIT SINGH BEDl,J.]

the person who signed the cheque was instructed to do A
so or whether he has been deprived of his authority to do
so when he actually signed the cheque. Those are matters
peculiarly within the knowledge of the company and those
in charge of it. So, all tht a payee of a cheque that is
dishonoured can be expected to allege is that the persons B
named in the complaint are in charge of its affairs. The
Directors are prima facie in that position."

7. A reading of this passage would reveal a slight depar-
tu re vis-a-vis the other judgments in favour of the complainant. It
will be noticed that this decision too was rendered on a consid- c
eration of both the judgments in S. M. S. Pharmaceuticals. The
matter came up yet again for consideration in N.K. Wahi case
(supra) which reiterated the earlier view and held that where
there were no clear averment in the complaint or the evidence
with regard to the role played by the Directors and as to whether D
y
and they were in charge e.nd responsible for the conduct of the
affairs of the company, it would not be possible to maintain the
prosecution against them and they were entitled to acquittal. It
may however be noticed that this was a case where an acquit-
tal was recorded after trial. E
8. It will be clear from the afore quoted judgments that the
entire matter would boil down to an examination of the nature of
averments made in the complaint though we observe a slight
digression in the judgment in N. Rangachari case (supra). It is
in this background, that the complaint needs to be examined. F
Paragraphs 2 and 8 are reproduced below:
"(2) I know the all the accused. The accused No.1 is
company registered under the Companies Act, 1956.
Accused No.2 is the Chairman of the accused No.1.
G
Accused No.3 is the Joint Managing Director of the
., Accused No.1 and accused No.4,5 and 6 are the
Directors of the accused No.1.
(8) The accused No.2 is the Chairman of accused No.1
and is responsible for the day to day affairs of H
1200 SUPREME COURT REPORTS [2008] 8 S.C.R.

A accused No.1 and therefore he is liable to repay
amount of dishonoured cheques. Accused No.3 being
Joint Managing Director and accused No.4,5 and 6
being the Director of the accused No.1 are /

responsible officer of accused No.1 and therefore
B they are liable to repay the amounts of the dishonoured '
cheques. As the accused have failed to make the '

payment within the stipulated period of 15 days after
receipt of statutory notice they have committed and
offence punishable under Section 138r/w141 of the
c Negotiable Instruments Act 1881 (As amended).
Hence this complaint is filed before this Hon'ble
Court."

9. A perusal of the aforesaid paragraphs would show that
accused No.2 is Paresh Rajda, the Chairman of the Company,
D and as per the impugned judgment of the High Court, the ques-
tion of his responsibility for the business of the Company has
not been seriously challenged. We, nonetheless, find clear alle-
gations against both the accused/appellants to the effect that
they were officers and responsible for the affairs of the com-
E pany. We are of the opinion that at a stage where the trial has
not yet started, it would be inappropriate to quash the proceed-
ings against them in the light of the observations of this Court
quoted above. We, accordingly, find no merit in the appeals.
They are dismissed.

S.K.S. Appeal dismissed

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