Ashutosh Ashok Parasrampuriya and Another vs M/s Gharrkul Industries Pvt Ltd: Section 138 NI Act: Summons to Directors Justified If Complaint Avers That They Were in Charge & Responsible for Conduct of Business of Company

DATE OF JUDGEMENT:
08/10/2021

CORAM:

• Hon’ble Justice Ajay Rastogi
• Hon’ble Justice Abhay S Oka

PARTIES:

• Appellants: Ashutosh Ashok Parasrampuriya and another
• Respondent: M/s Gharrkul Industries Pvt Ltd

SUBJECT

The Supreme Court clarified that the summons issued under Section 138 of the Negotiable Instruments Act to the directors of a company is justified if the complaint has averment that the executives were responsible for the company's activities.

OVERVIEW

• The case is of the complaint of a Private Limited Company which is engaged in the business of production and sale of spices named M/s Gharkul Industries Pvt Ltd and its directors. The Applicants approached the respondents for financial assistance. The two being well-known by each other, respondents provided financial assistance.
• The parties involved executed a Memorandum of Understanding with consent of all applicants and it was decided that the amount that was received would be returned within 1 or 2 years.
• An amount of Rs 1,50,19,831 was received by the applicants. On August 18, 2010, a letter was issued to the concerned applicants demanding their balance-sheet. It showed that as on 31/3/2012, the outstanding balance of the company was Rs. 1,49,94,831/-.
• According to the respondents, the directors of the company are responsible for the conduct of the business of the company. Hence, they should be held responsible for the affairs of the company. Further on 2/6/2012, the Company issued a cheque in favour of respondent No. 1 for encashment of the said amount. However, the said cheque was dishonoured due to funds not sufficient. After failing to accept the cheque, the notice was issued to the applicants, which was later returned without claiming it.
• The Respondents filed a complaint against the applicants under Section 138 of the said Act. The learned Trial Court issued the summons in the name of the applicants for the offences punishable under Section 138 of the NIA. The Applicants filed a criminal application before the High Court praying for quashing and setting aside the criminal complaint filed by respondent No. 1 as well as the summons issued by the learned Trial Court in pursuance of the complaint. The High Court affirmed the decision of the Trial Court. The Respondent approached the Supreme Court.

RELEVANT PROVISIONS

• Section 138 of Negotiable Instruments Act- It provides for compensation to the complainant, and it also allows for parties to reach a compromise during the pendency of a complaint. It encourages parties to settle disputes through the ultimate closure of the case rather than protracted litigation. This procedure saves the parties money and allows them to focus on their core business.Ingredients of offence-

1. drawing of the cheque,
2. presentation of the cheque to the bank,
3. returning the cheque unpaid by the drawee bank,
4. giving notice in writing to the drawer of the cheque demanding payment of the cheque amount,
5. failure of the drawer to make payment within 15 days of the receipt of the notice.

ISSUES

• Whether or not the allegation made out as a whole sufficient to satisfy the requirements of Section 141 of the NCL Act?
• Whether a director of a company is deemed to be in charge of conduct of business and further deemed to guilty of an offence unless he shows the contrary?
• 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 who admittedly would be in charge of the company and responsible to the Company for conduct of its business could be proceeded against?

ANALYSIS

• The Supreme Court held that a person who has issued a bounced cheque does not sufficiently become liable referring the ruling of SMS Pharmaceuticals Ltd. v. Neeta Bhalla and Another.
• The person can be held liable only when he's been in charge of the actions of the company at the time of their alleged wrongdoing. The Court explained that in order for a process to be initiated against a director, it is necessary to aver that the directors were in charge of the company's business at the time of the offence under Section 138 read with Section 141 of the NI Act.
• The Court noted that averment is very important because it is the basic averment that persuades the Magistrate to issue process against a Director. In cases where the basic averment of a case is missing, a Magistrate may be justified in not issuing a process order, the Bench noted.
• The Court has also ruled that before a Director is summoned for trial in a case, the Court must be satisfied that there is no prima facie evidence that shows that the Director was not involved in the issuing of cheques. The court noted that even if the basic averment is there, the court may come to the conclusion that no case has been made out against the accused Director.
• The Supreme Court has held that the Directors of a company were not signatories to the company's cheques. However, it is clear that the allegations are that at the time of the cheques being issued and dishonoured, the Directors were responsible for the company's business, the court noted.

CONCLUSION

The Court rejected the arguments of the appellants and ruled that the High Court did not have any error in declining to interfere with the summons. The Court dismissed the appeal. The trial court was directed to complete the trial on time since it had been put on hold by a 2014 interim order of the Supreme Court.

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