Case Analysis on: Ashutosh Ashok Parasrampuriya & Others vs M/S. Gharrkul Industries Pvt.

Case Analysis By:

Vivek Jain

Research Intern, Legal WIND

Citation: Criminal Appeal No(S). 1206 of 2021

Date of Judgement: October 08, 2021

Bench: Justice Ajay Rastogi, Justice Abhay S. Oka

Court: Supreme Court of India

Introduction:

The following is a commentary on the case of Ashutosh Ashok Parasrampuriya and others. vs M/S. Gharrkul Industries Pvt. which is being presented before the Supreme Court. This case deals with sections 138 and 141 of the negotiable instruments act. The appellants have filed an appeal under section 482 CrPC, requesting relief from the decisions made by the Honorable High Court under that provision. The Supreme Court has to decide whether the issue of cheques by defaulting company that was dishonored by the bank applies any vicarious liability on the directors over the general managers of that particular company who are the appellants in the present case.

Facts of the Case:

1. Back in 2007 when ASHUTOSH ASHOK PARASRAMPURIYA(appellant) and his other colleagues requested Gharkul Industries Private Ltd (respondent) for financial assistance as their business under the name Ameya Paper Mills Pvt. Ltd. was suffering and needed financial assistance to survive. A memorandum of understanding was signed between the respondents and the second appellant Dilip Shrikrishna Andhare with the consent of all other appellants.

2. A total amount of Rs. 1,50,19,831 was received by the appellants through cheque during the period, dated 23rd November 2007 to 12th March 2009. The borrowers committed to pay back the borrowed funds in one or two years. Later, the responder wanted to view the company's balance statement. He made it plain that all of the appellants are the company's directors and, as such, are accountable for the company's operations. The appellant-Company on 2nd June 2012 issued a cheque in favor of the respondent of the value Rs. 10,00,000/- which was later dishonored by the bank due to lack of funds. The respondent issued a notice in the name of the appellant demanding the said amount which was duly declined by them according to the post office authorities.

3. The respondent filed a complaint against the appellants under section 138 of the Negotiation Instruments Act, 1881,when the notice was not claimed. The trial court made the decision in favor of the respondents. This judgment was then contested by the appellants in two separate criminal petitions filed under section 482 of the Criminal Code. Seeking to have the criminal allegations filed against them, as well as the, summon orders of November 10, 2012, it has been quashed.

Arguments:

By Appellants

1. That no explicit official decision has been made that they have committed the violation and are liable for the company's business operations. They cannot be held vicariously accountable and charged in the proceedings just because they are directors of the corporation.

2. The appellants alleged that there was never a notice relating to the dishonour of the cheque, and there's no indication of their being the company's managing directors on the date the check was written.

3. Appellants were the non-executive directors of the company and therefore they are not responsible for any conduct of the business. The order passed by the trial judge was not according to the law.

By Respondents

1. The council for the respondents alleged that appellants have claimed that they are non-executive directors but according to form number 32 obtained by the registrar of companies, they are directors of the company and are responsible for the conduct of business activities involved in the company, furthermore, there is nothing to prove that they are appointed as non-executive directors.

2. It was further revealed that, in addition to the dishonored cheque in the immediate case, additional cheque were also dishonored over the course of the proceedings, and the respondent filed separate complaints about them.

Explanation:

The above-mentioned case is related to the essentials of section 138 and section 141 of the Negotiable Instruments Act, 1881. As mentioned by the appellant council, at the time of issue of the cheque, the appellants were considered non-executive directors of the company. To make the appellants responsible for the acts done that are the issuance of the cheque, they must be able to show that they are in command of the firm at the time the check is written.

Section 141 further states that the person may be discharged from his liability if he is successful in proving that he has performed all due diligence to prevent the commission of such offense. When any offenses committed by the company (in the above case, an offense under section 138 is committed) the in-charge of the company that may be either director, manager, secretary, or any other official, shall also be deemed to be guilty of that offense and shall be punished accordingly.

In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, the court has discussed the essential elements to apply section 141, the first element, the person accused was in charge of the business or was responsible for the conduct of the business. secondly only being a director in a company is not sufficient to make the person liable under the section, the specific requirement of section 141 is that the person should at least be responsible for the conduct of the business at the relevant time when the event took place. The appellants, in this case, are deemed to be executive directors of the company as it was proven by the registrar of companies. Also, the borrowed money was taken in the first place to save the business by the appellants themselves. This makes it clear that they were responsible for the conduct of the business. Now the question arises “whether they were responsible for issuing cheques that got dishonored due to insufficient funds or not”.

Here, the concept of vicarious liability comes into play. The appellants being directors were non-signatory, the court must decide whether they were vicariously liable for issuance of cheques in bad faith by the defaulting company. The honorable Court has relied upon the case of SMS Pharmaceuticals Limited(supra).

The court first reviewed a magistrate's duty when issuing a process and his ability to dismiss a complaint under section 203 of the Criminal Procedure Code. The court was surprised to learn that a complaint must include all of the information needed for the magistrate to decide whether or not to issue the procedure. The court also discussed the requirements to aver in a complaint under section 141 of the Negotiable Instrument act. Without this averment, the requirements of section 141 cannot be fulfilled. Concerning the liability of the executive directors for the conduct of the business, if they are responsible, then it will be covered under section 141 of the Negotiable Instrument Act and the High Court may not have the authority to grant them relief under section 482 CrPC. Making directors stand trial will be against the law unless it is established that they were not involved in the issue of cheques. The court is primarily concerned with the directors who are not signatories to the checks in this case.

The allegations in the present case mentioned that when the cheques were issued by the company and dishonored by the bank, then the appellants were the directors of the company and responsible for its business all the parents were involved in the business of the company. It is not conceivable that a cheque of such a high value is signed without the permission or consent of any one of the directors and even so after the cheques were issued in ‘dishonored notice’ for payment was sent to the company’s address as well as the personal address of the signatories of the memorandum of understanding, was declined by them as per the post office authorities. In the given circumstances. The court has said unequivocally that it will overrule the arguments of the skilled counsel for the appellants.

Further Proceedings:

Since other cases instituted by the respondents have been held up before the trial court, and these are the old cases instituted in 2012, the court has issued an interim

order and a further hearing will be conducted on November 22, 2021.

References:

1. Legislative Department, Negotiation Instruments Act 1881, A1881-26.

2. Legislative Department, The Code Of Criminal Procedure 1973, A1974-02.

3. S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005).8 SCC 89

4. Prachi Bhardwaj, ‘Explained| Sections 138 and 141 of NI Act: Vicarious liability of directors of a company for dishonour of cheques’(2021) <https://www.scconline.com/blog/post/2021/10/18/explained-section-138-read-with-section-141-of-the-ni-act-vicarious-liability-of-directors-of-a-company-for-dishonour-of-cheques/> SCC ONLINE.