S.M.S. PHARMACEUTICALS LTD. v. NEETA BHALLA AND ANR

Citation: [2007] 2 S.C.R. 862

Court: Supreme Court of India

Bench: S.B. SINHA, MARKANDEY KATJU

Case summary

S.M.S. PHARMACEUTICALS LTD. v. NEETA BHALLA AND ANR.pdf

Judgment text

S. M. S. PHARMACEUTICALS LTD. -- v. ' NEETA BHALLA AND ANR. FEBRUARY 20, 2007 (S. B. SINHA AND MARKANDEY KATJU, JJ. ] Negotiable Instruments Act, 1881-Sections 138 and 141-Dishonor of 'r cheque-Offence by Company-Liability of Director-Director resigning two years prior to issuance of cheque by Company-Held: Sufficient averment should be made against the Director in the complaint petition that the Director was incharge ofand was responsible for the conduct ofthe business of the Company-Merely being a party to a purported resolution does not show that the Director was actively associated with the management of the affairs of the Company-Only the Managing Director was authorized to do certain acts on behalf of the Company-Thus statutory requirements under ' section 141 not being satisfied, complaint against the DirectOr not "-( maintainable. Respondent No. 1 Director ofa Company resigned on 15. 04. 1994.

The Company represented by its Managing Director issued cheques to the appellant company Dn 19. 08. 1996 for certain amount towards discharge of its liability. The cheque was dishonoured for insufficient funds upon presentation. Appellant issued notice to the company and its Directors. Appellant filed a complaint petition against the Company, the Managing Director, Respondent No. I and another Director alleging that its Directors are actively involved in the Managment of the affairs of the Company as evident > from the resolution dated 15. 02. 1995. Respondent no. I filed a petition for discharge which was dismissed. Revision petition was also dismissed. Application under section 482 Cr. P. C. was filed and the same was permitted to be withdrawn. Another discharge application was filed and the same was dismissed. Thereafter, application was filed for quashing of the criminal proceedings. High Court held that the ali·:gations in the complaint petition against respondent No.

I were vague and indefinite and did not satisfy the >,... requirements of section 141 of the Negotiable Instruments Act, 1881; and thus, quashed the complaint against respondent no. I Hence the present appeal. Division Bench of this Court referred the question with regard to the S. M. S. PHARMACEUTICALS LTD. v. NEETA BHALLA 863 requirements of law for proceedings against the Directors of the Company for their purported constructive liability to the three Judge Bench of this Court. Three Judge Bench answered the reference and referred the matter to the Division Bench for determination on merit. Dismissing the appeal, the Court HELD: 1. 1. Section 141 of the Negotiable Instruments Act, 1881 does not say that a Director of a Company shall automatically be vicariously liable for commission of an offence on behalf of the Company.

What is necessary is that sufficient averments should be made to show that the person who is sought to be proceeded against on the premise of his being vicariously liable for commission ofan offence by the Company must be incharge and shall also be responsible to the Company for the conduct of its business. By reason of the provision, a legal fiction has been created. (Paras 16 and 171 (869-E-F) 1. 2. The liability of a Director must be determined on the date on which the offence is committed. Only because respondent No. 1 was a party to a purported resolution dated 15. 02. 1995 by itself does not lead to an inference that she was actively associated with the management of the affairs of the Company. This Court in this case has categorically held that there may be a ) large number of Directors but some of them may not associate themselves in the mangement of the day to day affairs of the Company and, thus are not responsible for conduct of the business of the company.

The averments must state that the person who is vicariously liable for commission of the offence of the Company both was iitcharge of and was responsible for the conduct of the business of the Company. Requitrements laid down therein must be read conjointly and not disjunctively. When a legal fiction is raised, the ingredients therefor must be satisfied. [Para 20) (871-B-D) 1. 3. Ifthe complaint petition is read in its entirety, the same would show that the only person who actively associated in the matter of obtaining loan, signing cheques and other affairs of the company which would lead to commission of the alleged offence was the Managing Director. By reason of the purported resolution dated 15. 02. 1995 only the Managing Director was authorized to do certain acts on behalf of the Company. The cheques were issued on 15. 08. 1996, i. e. , after a period of 17 months from the date of the ~aid resolution.

As is evident from the averments made in the complaint petition, the cheques represented the amount ofinterest payable on the amount deposited. (Para 21) (871-E-G) ,1. 4. On a Plain reading of the averments made in the complaint petition. it i~ satisfied that the statutory requirements as contemplated under section --+ 141 of the Act were not satisfied. Therefore, the judgment of the High Court cannot be faulted. [Para 23] [872-Aj · S. MS. Pharmaceuticals Ltd v. Neeta Bhalla & Anr. , [2005] 8 SCC 89; K. P. G. Nair v. Jindal Menthol India Ltd. , [2001] 10 sec 218; Monaben Ketanbhai Shah and Anr. v. State of Gujarat and Ors. , [2004] 7 SCC 15; Sabitha Ramamurthy and Anr. v. R. B. S. Channabasavaradhya, (2006) 9 SCALE 212 and Saroj Kumar Poddar v. State (NCT ofDelhi) and Anr. , (2007) 2 SCALE 36, referred to. 2.

With regard to the maintainabilityof the second application such a question had not been raisd before the High Court Even otherwise, the High Conrt was not denuded from exercising its inherent jurisdiction in a matter of this nature. The principles ofres judicata are not attracted. In the previous order b)' the High Court, it gave liberty to Respondent No. 1 to agitate the matter once. Respondent No. 1 merely took recourse thereto. In the case, not only the merit of the matter had been gone into by the High Court as also by this Court, the questions raised in the petition had been referred to a larger . · hereinbefore, the Managing Director and all other Directors were also made accused. 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 paragraph 3, thus, in our opinion do not satisfy the requirements - ) ... ..... of Section 141 of the Act. " -r 26. A faint suggestion was made that this Court in Saroj Kumar Poddar (supra) has laid down the law that the complaint petition not only must contain averments satisfying the requirements of Section 141 of the Act but must also show 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.

A plain reading of the said judgment would show that no such general law was laid down therein. The observations were '{ made in the context of the said case as it was dealing with a contention that although no direct averment was made as against the appellant of the said case fulfilling the requirements of Section 141 of the Act but there were other averments which would show that the appellant therein was liable therefor. 27. We, therefore, are of the opinion that the judgment ofthe High Court cannot be faulted. 28. Another submission of Mr. Mishra was that the second application was not maintainable. Such a question had not been raised before the High I Court. Even otherwise, the High Court was not denuded from exercising its inherent jurisdiction in a matter of this nature. The principles of res judicata j are not attracted. Reliance placed by Mr. Mishra on Simrikhia v. Dolley Mukherjee and Chhabi Mukherjee and Anr. , [1990] 2 SCC 437 is misplaced.

The question which arose for consideration therein was as to whether despite dismissal of an earlier application a second application would be maintainable which would virtually amount to review of the earlier order which would be contrary to the spirit of Section 362 of the Code of Criminal Procedure. It was held: , ---... "7. The inherent jurisdiction of the High Court cannot be invoked to ; override bar ofreview under Section 362. It is clearly stated in Sooraj Devi v. Pyare Lal, that the inherent power of the court cannot be exercised for doing that which is specifically prohibited by the Code. The law is therefore clear that the inherent power cannot be exercised for doing that which cannot be done on account of the bar under other provisions of the Code. The court is not empowered to review __,,. its own decision under the purported exercise of inherent power.

We find that the impugned order in this case is in effect one reviewing the earlier order on a reconsideration of the same materials. The High Court has grievously erred in doing so. Even on merits, we do not find any compelling reasons to quash the proceedings at that stage. " !. 29. We have noticed the previous order passed by the High Court. The "- ---r High Court gave liberty to Respondent No. I to agitate the matter once again. Respondent No. 1 merely took recourse thereto. Equally misplaced is the judgment of this Court in Rajinder Prasad v. Bashir and Ors. , [2001] 8 SCC 522. Although therein it was held that when an earlier revision application under Section 397 of the Code of Criminal Procedure bas been dismissed, as not pressed, a second application under Section 482 thereof for grant of same relief should not have been entertained, this Court opined: "8.

We are of the opinion that no special circumstances were spelt out 'y in the subsequent application for invoking the jurisdiction of the High Court under Section 482 of the Code and the impugned order is liable to be set aside on this ground alone. " 30. It is, therefore, r'l authority for the proposition that the High Court is not completely denuded of its power to exercise inherent jurisdiction for the second time. 31. Furthennore. this court therein also went into the merit of the matter. In this case, not only the merit of the matter had been gone into by the High -. ,, Court as also by this Court, the questions raised in the petition had been referred to a larger Bench for obtaining an authoritative pronouncement. It is, therefore, too late in the day for the appellant to contend that the application under Section 482 of the Code of Criminal Procedure was not maintainable. 32.

We may, however, notice that this Court in Superintendent and Remembrancer ofLegal Affairs, West Bengal v. Mohan Singh and Ors. , [1975] 3 sec 706 held that when there is a changed set of circumstances, a second application under Section 56 IA of the Code of Criminal Procedure would be >maintainable stating: I "2. The main question debated before us was whether the High Court had jurisdiction to make the order dated April 7, 1970 quashing the proceeding against Respondents I, 2 and 3 when on an earlier application made by the first respondent, the High Court had by its order dated December 12, 1968 refused to quash the proceeding.

Mr Chatterjee on behalf of the State strenuously contended that the High Court was not competent to entertain the subsequent application of Respondents 1and 2 and make the order dated April 7, 1970 quashing the proceeding, because that was tantamount to a review of its earlier order by the High Court, which was outside the jurisdiction of the High Court to do. He relied on two decisions of the Punjab and Orissa High Courts in support of his contention, namely, Hoshiar Singh v. +- - State and Namdeo Sindhi v. Stale. But we fail to see how these decisions can be of any help to him in his contention.

They deal with a situation where an attempt was made to persuade the High Court in exercise of its revisional jurisdiction to reopen an earlier order passed by it in appeal or in revision finally disposing of a criminal proceeding and it was held that the High Court had no jurisdiction to revise its earlier order, because the power ofrevision could be exercised only against an order of a subordinate court. Mr Chatterjee also relied ---. ( on a decisiol). ofthis Court in U. J. S. Chopra v. State of Bombay where N. H. Bhagwati, J. , speaking on behalf of himselfand Imam, J. , observed that once a judgment has been pronounced by the High Court either in exercise of its appellate or its revisional jurisdiction, no review or revision can be entertained against that judgment and there is no provision in the Criminal Procedure Code which would enable the High Court to review the same or to exercise revisional jurisdiction over the same.

These observations were sought to be explained by ~ Mr Mukherjee on behalf of the first respondent by saying that they I . should not be read as laying down any general proposition excluding ·rthe applicability of Section 561-A in respect of an order made by the j High Court in exercise of its appellate or revisional jurisdiction even ifthe conditions attracting the applicability ofthat section were satisfied in respect of such order, because that was not the question before the Court in that case and the Court was not concerned to inquire whether the High Court can in exercise of its inherent power under Section 5 61 A review an earlier order made by it in exercise of its appellate or revisional jurisdiction... " ~ 33. For the reasons aforementioned, we do not find any error whatsoever ; in the impugned judgment. The appeal is dismissed with costs. Counsel's fee assessed at Rs. I0,000/-. N. J. Appeal dismissed.