IN THE HIGH COURT OF BOMBAY (NAGPUR BENCH)
Appellants: Shri Ramprakash Gulati S/o Shri A. N. Gulati and Shri Kewal K. Gulati S/o R.P. Gulati
Respondent: State at the Instance of S.B. Ghotkar, Drugs Inspector
Respondent: State at the Instance of S.B. Ghotkar, Drugs Inspector
1. This application is filed with a prayer to quash and set aside the complaint against applicants and further to quash and set aside proceedings in Criminal Complaint Case No. 271/1996 pending before the Chief Judicial Magistrate, Yavatmal.
2. Non applicant/complainant filed complaint bearing No.271/1996 before Chief Judicial Magistrate, Yavatmal against the applicants along with other accused for the offence punishable under Section 18 (a) (i) read with Section 16 and 17B of the Drugs and Cosmetics Act, 1940 punishable under Section 27 (c) of Section 34 of Drugs and Cosmetics Act, 1940 (Hereinafter referred to as "the Act"). The applicants herein are arrayed as accused nos. 1 and 4 in the said complaint.
3. Perusal of the complaint would show that non applicant, who is Drug Inspector, appointed under Section 21 of the Act while applicants are shown as Directors of M/s. Pilco Pharma Pvt. Ltd. Kanpur. It is alleged in the complaint that complainant visited the premises of accused no. 6 on 09.06.1995, who is a Distributor and drew sample of Inframycin Skin Cream bearing Batch No. IC-12 manufactured in August-1994 having expiry date July-1996 and the said product is said to be manufactured by Pilco Pharma Pvt. Ltd. 123/37, Saresh Bagh, Kanpur.
The complaint further disclosed that complainant followed further procedure to send sample for analysis. The samples were also drawn from the other distributors. The complainant even came to the conclusion that the sample does not contain with the standards and hence an offence is alleged to have been committed under Section 18(a) (i) of the said Act.
4. Trial Court had issued summons on 31.09.1996. However, applicants herein have not been served with the said summons. The applicants came to know through other accused that prosecution is pending against them and theCourt has issued warrants against all the accused. Hence,the applicants are constrained to file this application.
5. The learned counsel for the applicants invited my attention to Section 34 of the Act, which deals with offence by Company. Section 34 of the Act reads as under:-
"34. Offences by companies.- (1) Where an offence under this Act 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 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 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 a 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."
On plain reading of Section 34 of the Act, the learned counsel appearing for the applicants urged that the other person, who is associated with the company, cannot be made accused and only those persons, who were incharge of or who are responsible for conduct of business of the company on the date on which offence is alleged to have taken place, can be arrayed as accused.
Therefore, the learned counsel would submit that the entire complaint does not disclose any offence as against the present applicants hence prosecution as against applicants is liable to be quashed and set aside only on this count.
6. It is further stated that perusal of complaint would show that the applicants are Directors of Pilco Pharma Ltd., which is also a misstatement of fact. It is submitted that the complainant, who is also Investigating Officer, conferred with powers and duties by Act had failed to enquire as to who was incharge of the Company as Director on the date when offence took place. It is further submitted that the applicants were not Directors of Pilco Pharma Pvt. Ltd. in the year 1994-95 when the offence is said to have been committed. The applicants were earlier Directors of above said Company. However, they have resigned from the Directorship on 21.04.1989 and in their place Smt. Poonam Gulati and Smt. Ragini Gulati have been appointed as Director with effect from 05.05.1989. The learned counsel invited my attention to the True Copy of Form 32 maintained with Registrar of Companies. Learned counsel, on the basis of copy of Form 32 at Annexure-ii, contended that the applicants were not responsible for the conduct of business of the company after 21.04.1989. It is further submitted that in the absence of allegations in the complaint that the applicants were responsible for the conduct and business of company and further placing reliance on Form 32, which shows that applicants resigned from Directorship and new Directors were appointed in the year 1989 no summons should have been issued to the applicants.
Thus, the prosecution launched against the applicants for the above offences committed by Pilco Pharma Pvt. Ltd. is abuse of the process of Court and hence interest of justice requires that proceedings against the applicants be quashed and set aside. It is further submitted that it was for the non applicant-Investigating Officer to enquire from the Registrar of Companies as to who were Directors of the said Company. It is further submitted that it appears that the Investigating Officer has failed to do so even otherwise there are no allegations in the said complaint about involvement of applicants in day-to-day conduct of the business of the company and hence the complaint raised does not make out any offence against above applicants and the same is liable to be quashed and set aside at the threshold itself.
7. It is further submitted that applicant no.1 is an old aged person of 82 years and not in a position to attend proceedings in Yavatmal from Kanpur due to ill health. Several prosecutions are pending against the said company for which the applicants are being troubled. It is further submitted that when, in fact, there is no relationship with said company of the applicants from way back in 1989 and for that to face prosecution and attend the dates of the prosecution would cause serious prejudice to the applicants, who have no concern with the company. Therefore, learned counsel would submit that this application may be allowed.
8. Learned A.P.P., on the basis of affidavit-in-reply filed on behalf of the complainant-State, would submit that the complaint is filed on 14.10.1997 on the basis of information given in Memorandum of Association, which was registered on 23.01.1987 against the present applicants as well as other two accused persons. On the basis of affidavit-in-reply it is further submitted that on 05.05.1989, Smt. Poonam Gulati was appointed in place of Director, R. P. Gulati i.e. accused no.1. It is mentioned by accused that on 05.05.1989, wife of Mr. J. K. Gulati was appointed in place of Director Shri J. K. Gulati i.e. accused no.4 as per Form 32 of the Companies Act, 1956.
(Annexure 2, page no. 24). According to learned A.P.P. the information was sought in respect of resignation of the applicants from Registrar of Companies by complainant and list of Directors was received on 31.03.1996 in which name of Smt. Poonam Gulati is mentioned as Director (Correspondence and Attending the visitors) and appointed on 05.05.1989. It is further submitted that it is nowhere mentioned that on the date of offence i.e. on 09.05.1995 or prior, accused no.1 i.e. Ramprakash Gulati was not Director. Moreover, his date of resignation is not given and documents to that effect were not provided.
He further submitted that Mr. Keval Kumar Gulati is appointed on 21.04.1989 and under brief particulars of change, it is mentioned that he has resigned from Directorship and Smt. Pushpawant Gulati was appointed as Director (No active duty) on 13.02.1989. Learned A.P.P., therefore, would submit that as per information received from the Registrar of Companies, it does not mention the name of Smt. Ragini Gulati. There is only mention of name of Smt. Poonam Gulati appointed on 05.05.1995 or prior to that accused no.4 i.e. Kewalkumar Gulati was not Director. His date of resignation is not mentioned and supporting documents are not provided.
It is further submitted that five applicants have been charged and made accused nos.1 and 4 on the basis of information in Memorandum of Association. It is pertinent to note that in due course of time, if there is any change in Directorship, then the documents to that effect were not submitted by the accused. It is the responsibility of the accused persons to submit documentary evidence before the Chief Judicial Magistrate, Yavatmal, if they were not Directors on or before 09.05.1995, and prayed for appropriate relief. Therefore, the learned A.P.P. would submit that burden is on the applicants to prove that they were not Directors at the relevant time.
9. Learned A.P.P further submitted that whether the applicants herein were responsible and incharge of day-to-day affairs of the company has to be proved by them and burden lies on the applicants/accused to prove said fact by leading evidence before the Court below. In support of his contention, learned A.P.P. invited my attention to judgment of in N. Rangachari..vs..Bharat Sanchar Nigam Ltd.; 2007 (2) Mh.L.J.(Crim.) 248;
Raghu Lakshminarayanan ..vs.. Fine Tubes; 2007 (2) Mh.L.J.(Cri.) 257; U. P. Pollution Control Board ..vs.. Messrs Modi Distillery and others;
(1987) 3 Supreme Court Cases 684; and Prafulla Maheshwari and others ..vs.. State of Maharashtra and another; 2008(1) Mh. L. J. (Cri.) 211.
10. I have heard learned counsel for the applicants and learned A.P.P. for the State. Contentions raised by learned counsel for the applicants is two fold.
Firstly, when alleged offence took place, at the relevant time, the applicants, who are original accused nos. 1 and 4, were not Directors of the Company. And secondly, without admitting but assuming that they were Directors at the relevant time when alleged offence took place, there is no categorical averment in the complaint that applicants were incharge of and were responsible to the Company for the conduct of business of the company at the time when offence was committed. Learned counsel in support of his first contention invited my attention to Annexure-ii, at page no.24 of the compilation i.e. Form 32 and submitted that both the applicants have resigned from Directorship on 21.04.1989 and in their place Smt. Poonam Gulati and Smt. Ragini Gulati have been appointed as Directors with effect from 05.05.1989.
11. On careful perusal of Annexure-ii, Form 32, said document would reveal that Ram Prakash Gulati and Kewal Kumar Gulati have resigned with effect from 21.04.1989. The affidavit-in-reply filed on behalf of the State in para 3, contends that name of Poonam Gulati as Director (correspondence and attending the visitors) is appointed on 05.05.1989. Said paragraph further mentions that Keval Kumar Gulati's date of appointment or change is 21.04.1989 and under brief particulars of change it is mentioned that he has resigned from directorship and Smt. Pushpawant Gulati was appointed as Director (No active duty) on 13.02.1989. Therefore, though it is vehemently argued by learned A.P.P. that the basis of Annexure-ii, it cannot be said that the applicants have resigned as contended by them and Smt. Poonam Gulati and Pushpawant Gulati are appointed in their place, perusal of affidavit-in-reply filed by State would clearly show that Smt. Poonam Gulati came to be appointed on 05.05.1989, Smt. Pushpawant Gulati came to be appointed on 13.02.1989. Case of the applicants is that in their place, these two ladies came to be appointed.
12. On careful perusal of the affidavit-in-reply filed by non applicant-State, it would reveal that complainant has grievance against Registrar of Companies for not supplying adequate information. It is an admitted position that the complainant has charged accused nos. 1 and 4 on the basis of information in Memorandum of Association. It is also admitted position that the Memorandum of Association is prepared in the year 1987 and even according to the complainant, alleged offence had taken place on 09.05.1995. On perusal of affidavit-in-
reply filed by non applicant-State and upon hearing learned A.P.P. for the State, it clearly emerges that the complainant has not verified record from the Registrar of Companies and without verifying the record only on the basis of Memorandum of Association, which was prepared in 1987 in which name of the applicants were mentioned as Directors have been taken as base to add the applicants as accused. In fact, case of the applicants is that they have resigned from the Directorship of the Company on 05.05.1989 and to that effect, Registrar of Companies was informed by them. Therefore, it can safely be said that the complainant, without application of mind and verifying that at the relevant time i.e. on the date of alleged offence whether applicants were Directors or not, has added them as accused persons merely on the basis of Memorandum of Association, which was prepared in 1987. Though, learned A.P.P. submitted that burden lies on the applicants to prove that they have resigned on 05.05.1989, in my view, it was not difficult for the complainant at least to have prima facie and preliminary search before filing the complaint to see that who are the persons responsible and incharge of the day-to-day affairs of the company. After all, the record maintained by the Director of Companies is public document/record.
13. Coming to the second contention raised by learned counsel for the applicants that without admitting but assuming that the applicants were Directors on the date of offence, in that case provisions of Section 34 of the Act are necessarily to be looked into. Section 34 mandates that the complaint should specifically state that the applicants were responsible and incharge of the day-
to-day affairs and in the absence of such specific averments in the complaint, the Magistrate should not have issued summons and there is no question of entertaining the complaint where specific statement is not made.
14. It is an admitted position that in the complaint, which is placed on record at Annexure-i from pages 11 to 21, there is no averment that the applicants/ accused are Directors and they are incharge and responsible to the conduct of the business of Company for the date of alleged offence. The Hon'ble Supreme Court, in number of reported pronouncements held that, it is necessary to specifically aver in the complaint that when the offence was committed accused was incharge of and responsible for the conduct of business of company. This averment is an essential requirement of relevant provision of the Act and has to be made in the complaint.
Unless such averment is made in complaint, requirement of said section cannot be said to be fulfilled.' It is further held that, 'Merely being a Director of Company is not sufficient to make a person liable unless he is responsible and incharge of the day-to-day affairs of the company.' This view is taken by the Hon'ble Supreme Court as well as this Court in various cases.
Judgment of this Court in H. M. Dave ...vs..
Gitanjali Shah & Anr.; 1998 (4) L J 830; is also founded on same footing i.e. presence of averments in the complaint. In para 5 of the judgment, this Court has held that, 'the averments against the petitioner-accused No.4 having been found insufficient, the petition succeeds..."
In K.P.G. Nair ..vs.. M/s. Jindal Menthol India Ltd. 2001 (2) Supreme 311; Hon'ble Apex Court observed in the facts and circumstances of that case that, it is clear that the allegations made in the complaint do not either in express words or with reference to the allegations contained therein, make out a case that at the time of commission of the offence, the appellant was in charge of and was responsible to the Company for the conduct of business. And, the Hon'ble Supreme Court allowed the appeal taking note of the fact of absence of pleadings in the complaint.
In case of Katta Sujatha ..vs.. Fertilizers & Chemicals Travancore Ltd. & another; 2003 (1) Bom. C. R. 517, Hon'ble Apex Court, after elaborating the term "person in charge" held that, "the partner of a firm is liable to be convicted for an offence committed by the firm if he was in charge of and was responsible to the firm for the conduct of the business of the firm or if it is proved that the offence was committed with the consent or connivance of, or was attributable to any neglect on the part of the partner concerned."
In Monaben Ketanbhai Shah ..vs.. State of Gujarat; 2004-JT-6-309; the Supreme Court while interpreting provisions of Section 141 of the Negotiable Instruments Act held that the present case is of total absence of requisite averments in the complaint.
In S. M. S. Pharmaceuticals Limited ..vs..
Neeta Bhalla and another; 2005 (4) Mh. L. J. 731, Larger Bench of the Hon'ble Supreme Court held that, "A director in a company cannot be deemed to be in charge of and responsible to the company for 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."
In Sabitha Ramamurthy and anr. ..vs..
R.B.S. Channabasavaradhya; (2006) 10 Supreme Court Cases 581; The Hon'ble Supreme Court held that the vicarious liability can be inferred so far as a company registered or incorporated under the Companies Act, 1956, is concerned, only if the requisite statements, which are required to be averred in the complaint petition, are made so as to make the accused therein vicariously liable for the offence committed by the company.
It is also necessary to take note of judgment in N. K. Wahi ..vs.. Shekhar Singh and others;
(2007) 9 Supreme Court Cases 481. The Hon'ble Supreme Court, in para 8 held that, "To launch a prosecution, therefore, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the Directors are incharge and responsible for the conduct of the business of the company. The description should be clear. It is true that precise words from the provisions of the Act need not be reproduced and the court can always come to a conclusion in facts of each case. But still, in the absence of any averment or specific evidence the net result would be that the complaint would not be entertainable."
In Saroj Kumar Poddar ..vs.. State (NCT of Delhi) and another; 2007 SCCL.COM 22; the Hon'ble Supreme Court held in para 5 that, "With a view to make a Director of a Company vicariously liable for the acts of the Company, it was obligatory on the part of the complainant to make specific allegations as are required in law.
In S. M. S. Pharmaceuticals Ltd. ..vs..
Neeta Bhalla & Anr.; 2007 ALL MR (Cri) 870 (SC), also, it is held that, "only because respondent no.1 was a party to said resolution it by itself did not lead to an inference that she was actively associated with management of the affairs of the Company."
Yet in another reported judgment in Ramrajsingh ..vs.. State of Madhya Pradesh and another; (2009) 6 Supreme Court Cases 729. Here, the Hon'ble Supreme Court, placing reliance on its earlier decisions and law laid down from time to time held that it is necessary to specifically aver in a complaint under Section 141 that at the time of offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company.
In K. K. Ahuja ..vs.. V. K. Vora and another; (2009) 10 Supreme Court Cases 48; Their Lordships have held that, "In case of a Director, secretary or manager [as defined in Section 2 (24) of theCompanies Act] or a person referred to in clauses (e) and
(f) of Section 5 of the Companies Act, an averment in the complaint that he was in charge of, and was responsible to the company, for the conduct of the company is necessary to bring the case under Section 141(1) of the Act."
15. Taking over all view of the matter, it will not be out of place to mention that provisions ofSection 34 of the Act is pari materia to provisions of Section 141 of the Negotiable Instruments Act and, therefore, case in hand is squarely covered by judgments of the Apex Court cited supra.
16. Now, in the light of above cited judgments, let's have a look to the facts and circumstances of the present case. It would be appropriate to test the case in hand on the touchstone of law laid down in the above referred pronouncements. It is admitted position that in the complaint there are no averments that the applicants/ accused were incharge and responsible for the conduct of business of company at the time of commission of the alleged offence. Therefore, the case in hand is squarely covered by the various pronouncements by the Hon'ble Supreme Court.
17. Though learned A.P.P has invited my attention to judgments of this Court and judgments of Hon'ble Supreme Court in N. Rangachari ..vs.. Bharat Sanchar Nigam Ltd. supra, on perusal of said judgment, it reveals that there was specific averment in the complaint that the accused therein were responsible and incharge of the day-to-day affairs of the society. So also, judgment of this Court in Prafulla Maheshwari and others; supra, has no application in the facts and circumstances of the case since in that case also there was averment in the complaint that accused nos. 2 to 9 therein are looking day-to-day business of the Company. This Court, in the said judgment, in para 7 has taken a note of averments in the complaint that the applicants therein, who are original accused nos. 2 to 4 and 8, are looking day-to-day business of the company. It is also noteworthy that in view of the larger Bench judgment of the Hon'ble Supreme Court in the case of S. M. S. Pharmaceuticals Limited (supra), the judgments cited by learned A.P.P. in case of U. P. Pollution Control Board cited supra will have no application because said judgment is earlier in point of time to the larger Bench Judgment of the Hon'ble Supreme Court.
18. In the result, the application succeeds. Rule made absolute in terms of prayer clause 1 and 2 of the application. The main complaint no. 271/1996 is quashed and set aside qua present applicants.
The application is allowed and disposed of accordingly. Miscellaneous applications, if any stand disposed of.