Usha Sanghi and Siddharth Sanghi v. Dr. George Jacob and State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT :** **THE HONOURABLE MR. JUSTICE R.BASANT** **FRIDAY, THE 26TH SEPTEMBER 2008 / 4TH ASWINA 1930** **Crl.MC.No. 2746 of 2008()** **-------------------------** **ST.44/2008 of JUDL.MAGISTRATE OF FIRST CLASS COURT-II, PERINTHALMANNA ...............................................** ## **PETITIONERS: ACCUSED 3 AND 4:** **-----------------------------------------------------** **1. USHA SANGHI, W/O. SUDHIR SANGHI,** - **R/O. 4.3.352, BANK STREET, HYDERABAD-95.** **2. SIDDHARTH SANGHI, S/O. SUDHIR SANGHI, R/O 4-3-352, BANK STREET, HYDERABAD-95.** - **BY ADV. SRI.V.G.SANKARAN SRI.HARIKRISHNAN RAVINDRAN** ## **RESPONDENTS: COMPLAINANT:** **--------------------------------------------------** **1. DR. GEORGE JACOB, PROPRIETOR OF M/S. WYNAD RESINS, PUNNAPPALA.P.O, ERIYAD, WANDOOR, MALAPPURAM.** **2. STATE OF KERALA,** **REPRESENTED BY THE PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM.** **BY PUBLIC PROSECUTOR SRI. S.U. NAZAR - R2 ADV. SRI.V.RAJENDRAN FOR R1 SRI.P.SAMSUDIN FOR R1** **THIS CRIMINAL MISC. CASE HAVING BEEN FINALLY HEARD ON 26/09/2008 ALONG WITH CRMC NO. 2883 OF 2008 AND CONNECTED CASES, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** _Kss_ ## R.BASANT, J -----------------------------------Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 ------------------------------------- ## Dated this the 26[th ] day of September, 2008 ## ORDER (i) Whether the complaints against the petitioners deserve to be quashed for the reason that sufficient averments are not there to attract liability under Section 138 r/w 141 of the Negotiable Instruments Act (the Act hereafter) ? (ii) Whether the non compliance with the mandate of amended Section 202 Cr.P.C - to necessarily conduct an enquiry before issuing process to an accused person residing outside the jurisdiction of the Magistrate, vitiates the cognizance taken in these cases ? (iii) Whether the courts concerned have territorial jurisdiction to entertain the complaints ? 2. These questions are raised in these petitions where 2 of the 6 accused persons in identical complaints filed by the same complainant pending before two criminal courts seek invocation of the extraordinary inherent jurisdiction under Section 482 of the Code of Criminal Procedure to quash the prosecution in so far as they relate to them. Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 2 3. To the vital facts first. The complainant alleged that the 1[st] accused, a company, had issued the cheques involved in these cases to him for the due discharge of a legally enforcible debt/liability. There is no contention that either of the petitioners had signed the cheques in question. It is alleged that they were directors of the company. There are averments which suggest that they have roles to play in the management and affairs of the company. All the complaints were filed along with affidavits under Section 145 Cr.P.C in lieu of sworn statement under Section 200 Cr.P.C. No enquiry under Section 202 Cr.P.C was conducted by the Magistrates in all these cases. Cognizance was taken and process was issued against all the 6 accused persons including the petitioners herein who are accused 3 and 4 in all the prosecutions. 4. Learned counsel for the petitioners (petitioners appear through different counsel) have raised various contentions and to resolve the contentions raised, the 3 questions initially raised will have to be answered. The respondent/complainant has entered appearance. Counsel are at variance as to what is the nature of the allegations that ought to Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 3 be raised in a complaint alleging complicity for the offence under Section 138 r/w 141 Negotiable Instruments Act. The counsel have practically repeated all the arguments that were raised before this Court which were considered in **Paul Mathew v. Lab & General Exports Pvt. Ltd** .[2008(3) KHC 462 ie. 2008(3) KLT 599]. I shall not be dragged further into that controversy afresh. Suffice it to say that after considering all the arguments that are raised before me now, the conclusion has been reached in para.14 of that decision which I extract below: “What is the final outcome ? A careful consideration of all these decisions appears make it clear that in the complaint specific assertions must be made to attract the play of Section 141 of the N.I Act. It has to be pleaded as a fact that the indictees concerned are in charge of and responsible to the company for the conduct of its affairs. Once that allegation is specifically raised, it is for the complainant to adduce evidence in support of such assertion later. A ritualistic incantation of the words of the Statute may not be expected or insisted. But it has got to be effectively conveyed as a matter of fact that the accused persons were in charge of and responsible to the company for the conduct of its affairs on the date of the offence. Such averments, if they are there, they can be attempted to be supported later at the stage of enquiry under Section 200/202 of the Cr.P.C or at the later stages of the trial. It is trite in the law of pleadings that what is to be pleaded is the facts and not evidence to be adduced in support of such facts.” Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 4 I have no reason to come to any different conclusion on the above aspect even after hearing the detailed arguments in these cases. 5. The next question is whether sufficient averments to satisfy the law as understood in para.14 extracted above are there in these complaints. All the complaints are identical complaints. I have gone through the averments in the complaints in detail. It is averred that “all affairs of the 1[st] accused company are carried on by accused 2 to 6”. It is further asserted that “in all business affairs of the 1[st] accused company, accused 2 to 6 have responsibility”. The above averments in para.2 are capped with the final sentence in that paragraph that “in the day to day activities of the company, accused 2 to 6 have equal participation”. I am not adverting to the other averments which are there in para.3. Suffice it to say that the above specific averments made, do according to me, satisfy the mandate of law as understood by me in para.14 of **Paul Mathew** (supra) extracted above. It is true that further details are not pleaded as to how and in what manner they perform their duties as directors. That aspect was also considered in **Paul Mathew** Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 5 (supra) and the observation in **S.M.S Pharmaceuticals Ltd. v. Neeta Bhalla** [2007(3) KLT 672 SC] that **Sarojkumar Poddar v. State** [2007 (2) KLT 1030] does not lay down any general law that the pleadings must show how and in what manner the directors were, liable, was specifically noted in para.13. It is also true that in the complaint in the instant case there is no ritualistic repetition of the specific words of the statue “that the directors are in charge of and responsible to the company for the conduct of its affairs”. The question is not whether the words of the statues have been repeated. The question is only whether sufficient averments to attract liability under Section 141 of the Negotiable Instruments Act have been raised or not. I have no hesitation to agree that they have been. 6. Sri.Harikrishnan, counsel in some of these matters, argues that there is no specific averment that the 1[st] accused company is quilty. In the absence of such averment, Section 141 of the Act can have no application whatsoever, contends counsel. The law of pleadings is of course not merely technical alone. The question is whether sufficient averments to notify the adversary of the stand taken by the party are there in the pleadings or not. Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 6 It is a question of natural justice. The adversary must know the case of the party. He must have effective and reasonable opportunity to know, understand, respond, meet and disprove the case of his opponent. This is the rationale underlying the law of pleadings. It is not a matter of mere technicality. I am certainly convinced on a complete and exhaustive reading of the complaint that sufficient averments to notify all the accused that the 1[st] accused is principally liable and consequently the others are alleged to be liable are there. If one reads the complaints completely and exhaustively and does not perceive this assertion, he is definitely missing the woods for the trees. I am hence not able to accept the contention that the complaint must fail for the reason that it is not specifically alleged, in those words, that the 1[st] accused company is liable. 7. Sri.Babu.S.Nair, learned counsel for the accused in some matters contends that there is significant absence of a specific averment that the accused persons are in charge of and responsible to the company for the conduct of its affairs “at the time the offence was committed.” Here again, I think that acceptance of that argument would be succumbing to Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 7 meaningless technicality as, in effect and in substance, the averments eminently convey that accused 2 to 6 were in charge of and responsible to the company for the conduct of its affairs on the date of the offence. Even in the absence of a ritualistic repetition of those words, the conclusion appears to be irresistible that the averments relate only to the time of the offence. 8. There is, of course, a dispute as to what would be the precise time of the offence. I shall not embark on a more detailed discussion on that controversy. In **Kairali Marketing** **and Processing Co-op.Society Ltd.v. Pullengadi Service Coop.Society Ltd. [2007(1)KLT 287]** it has been held that it is the date of dishonour of the cheque which will be crucial while ascertaining the point of time for application of Section 141 of the Act. The offence under Section 138 of the N.I.Act takes place on the date of dishonour of the cheque, it was held. There is no dispute in this case that all the accused persons were directors on the date of dishonour of the cheques. That contention is thus found to be of no avail. Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 8 9. I must, in these circumstances, come to the conclusion that the first question raised has got to be answered against the petitioners. Sufficient averments to attract liability under Section 138 read with 141 of the N.I.Act are there in the complaints, I hold. 10. Coming to question No.2, argument is advanced that no enquiry under Section 202 Cr.P.C has been conducted by the learned Magistrate though cognizance was taken after 23/6/2006, the date on which the amended Section 202 Cr.P.C came into effect. After the amendment, Magistrates are obliged, in a case where the accused resides at a place beyond the area in which the Magistrate exercises his jurisdiction, to conduct an enquiry under Section 202 Cr.P.C. Admittedly, such an enquiry has not been conducted. Whether the Magistrate is bound ritualistically to conduct such an enquiry in every case did come up for consideration before this court and this court in **H.D.F.C** **v. Jaleel [2008(3) KLT 869]** has come to the specific conclusion that the Magistrate is obliged to conduct such an enquiry, even in a prosecution under Section 138 of the Negotiable Instruments Act, though the mere non-compliance Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 9 with that stipulation may not vitiate cognizance taken by such Magistrate. A contention was raised in that case that the amended Section 202 Cr.P.C cannot have any application to prosecutions under Section 138 of the Negotiable Instruments Act. After detailed consideration, the question was answered vide clauses viii, ix, x and xi of paragraph 31 which I extract below: - “viii) S.202 Cr.P.C as amended applies to prosecutions under S.138 of the N.I.Act also in the light of S.4(2) of the Code and in the absence of any specific contra provisions in S.138 of the N.I.Act. - ix) But ordinarily in a prosecution under S.138 of the N.I.Act, if a proper complaint is filed supported by necessary documents and a proper affidavit is filed under S.145 of the N.I.Act it may not be necessary for the Magistrate to proceed to hold the enquiry under S.202 Cr.P.C as the requisite satisfaction can be entertained at the end of the enquiry under S.200 Cr.P.C itself. - x) But in a case where there is possibility of dispute regarding territorial jurisdiction, or dispute regarding complicity alleged with the help of S.141 of the N.I.Act, it will be proper, necessary and advisable for the Magistrate to hold enquiry under S.202 Cr.P.C, if requisite satisfaction is not induced by the materials placed before it under clause (ix) above. - xi) Even in such enquiry under S.202 Cr.P.C in a prosecution under S.138 of the N.I.Act, it is not invariably necessary to examine a complainant and his witnesses personally on oath. They can be directed to file affidavit or additional affidavit under Section 145 of the N.I.Act on the specific aspects where materials are found necessary or the Court entertains doubts. Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 10 S.145 of the N.I.Act as explained in the decision in Vasudevan v. State of Kerala (2005(1)KLT 220) shall apply to the stage of enquiry under S.202 Cr.P.C also. Courts must be specifically cognisant of the need for expedition in a prosecution under S.138 of the N.I.Act.” 11. It therefore is evident that though failure/omission to conduct an enquiry under Section 202 Cr.P.C in a prosecution under Section 138 of the N.I.Act will not ipso facto vitiate the cognizance taken, it is necessary in a case where accused persons are sought to be saddled with liability under Section 141 of the N.I.Act to conduct such an enquiry. In the facts and circumstances of this case, I have no hesitation to agree that the learned Magistrates must necessarily have conducted an enquiry under Section 202 Cr.P.C to ascertain whether materials are there to justify the allegation that the accused persons, including the petitioners herein, were in charge of and responsible to the company for the conduct of its affairs. On that aspect, in respect of the accused persons who are residing at Hyderabad, the pointed attention of the court must have been riveted imbibing the motivations and persuasions that prompted the legislature to bring in the amendment to Section 202 Cr.P.C. That has not been done by the learned Magistrate and that Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 11 inadequacy, according to me, justifies the challenge raised by the petitioners. 12. Sri.Shamsudeen, learned counsel for the complainant argues that it is not necessary for the court to insist on anything more than averments in the complaint to satisfy the mandate of **S.M.S.Pharmaceuticals Ltd. v. Neeta Bhalla [2005(4) KLT 209(SC)]** . In support of this contention, the learned counsel for the complainant relies on the decision in **Mymoonath Beevi v. State of Kerala [2005(4) KLT 174]** . A Division Bench of this court in that judgment had disapproved certain observations which were there in the earlier decision of **Biju Jacob v. Annie Mathew [2004(2) KLT 634]** and had taken the view that at the threshold, if sufficient averments are there, it is not necessary to insist on any further material. Learned counsel for the complainant hence contends that in the light of the conclusion on question No.1 above that there are sufficient averments to attract culpability under Section 138 read with 141 of the Negotiable Instruments Act, it was not necessary for the Magistrate to insist on any further material. Learned counsel relies on the observations in paragraph 18 of the decision in Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 12 ## **Mymoonath Beevi** (Supra). “Where the allegations in the complaint are found to satisfy the requirement of S.141 of the Act, it may not be necessary to insist on any further material at the threshold stage of taking cognizance of the complaint. Where the complaint does contain the necessary averment falling either under sub-s.(1) or under sub-s.(2) of S.141, we are of the view that it may not be necessary to insist on any further material at the threshold stage by drawing a distinction between “signatory” and “non-signatory” to the cheque in respect of which the prosecution is launched.” 13. Learned counsel for the petitioners in this context contends that **Mymoonath Beevi** (Supra) was delivered at a time when amendment to Section 202 Cr.P.C had not come into existence. The very purpose of the amendment to Section 202 Cr.P.C is to insist that in respect of that category of persons who reside beyond the jurisdiction of the Magistrate, the Magistrate must be more careful before issuing process. It is not sufficient, if averments in the complaint satisfy the requirement. It is further necessary that an enquiry must be conducted under Section 202 Cr.P.C for the Magistrate to be satisfied that there is materials to justify the allegations. Only if that satisfaction is entertained need cognizance be taken and process issued. Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 13 Unless the amendment to Section 202 Cr.P.C is understood in that light, the very purpose of the amendment would be defeated. It is not any more sufficient that necessary averments are there in the complaint. The Magistrate must be satisfied by sworn statements recorded under Section 200 Cr.P.C and enquiry conducted under Section 202 Cr.P.C that cognizance can be taken against an accused residing outside the jurisdiction of the Magistrate which would expose such accused to graver consequences, contend counsel. 14. I find merit in that contention. After the amendment to Section 202 Cr.P.C in so far as accused persons residing outside the jurisdiction of the Magistrate are concerned, not only the averments in the complaint but also materials collected at the enquiry under Section 200 and 202 Cr.P.C must be available to persuade the Magistrate to take the view that there are sufficient grounds to issue process against the accused under Section 204 Cr.P.C. The purpose of the amendment to Section 202 Cr.P.C is obviously to rule out the possibility of undeserved vexation for persons residing outside the jurisdiction of the Magistrate inflicted on them by a complainant by unjustified resort to Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 14 criminal adjudicatory process. Skillful drafting of the complaint cannot defeat this purpose. The very purpose of enquiry under Section 200 and 202 of the Code is to check and verify whether the allegations in the complaint are justified and supported by material. After the amendment to Section 202 Cr.P.C in 2006, it cannot at any rate be held that satisfactory averments in a complaint skilfully drafted shall ipso facto entail issue of process under Section 204 Cr.P.C. The Magistrate must be satisfied before issue of process not only that the complaint contains the requisite averments but also that such averments are, on the face of it, supported by sufficient material collected in the enquiry under Section 200 and 202 Cr.P.C. Thus cognizance taken in this case against the petitioners must certainly be held to be bad for the reason that no enquiry under Section 202 Cr.P.C was conducted despite the mandate of the amended Section 202 Cr.P.C. 15. Sri.Harikrishnan points out that this contention is all the more relevant in the case because the reply notices issued by the accused persons had clearly conveyed to the complainant that they were not in charge of and responsible to the company Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 15 for the conduct of its affairs. I agree that the need for a proper enquiry under Section 202 Cr.P.C is all the more prominent and relevant in the facts and circumstances of this case particularly in the light of the stand taken in the reply notice. Question No.2 is, in these circumstances, answered in favour of the petitioners and against the complainant. The court below must be directed to conduct a proper enquiry under Section 202 Cr.P.C afresh to decide the question of issue of process against the accused. 16. We now come to question No.3. The prosecutions are pending before two different courts. The complainant appears to have chosen to file the complaints before two courts though the allegations raised in the two complaints are substantially identical though relating to different cheques. The complaints before the learned J.F.C.M, Perinthalmanna are filed alleging jurisdiction at the place where the complainant resides and the payment was to be effected whereas the complaints filed before the learned J.F.C.M, Nilambur are filed asserting that that court has jurisdiction because the cheques were presented for collection before the banks within the jurisdiction of that court. Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 16 17. The decision in **Santhosh Kumar v. Mohanan [2008** **(3) KLT 461]** has laid down that the court within the jurisdiction of which the collecting bank is situated, does not for that reason have jurisdictional competence to entertain the complaint. The learned J.F.C.M, Nilambur cannot, in these circumstances, be held to have jurisdiction. The case pending before that court can be directed to be sent over to the court of the J.F.C.M-II, Perinthalmanna. The third question is answered thus. 18. I do note that more accused than the petitioners are there in all these cases. The benefit of the view taken by me that the cognizance is bad for the reason that no enquiry under Section 202 Cr.P.C has been conducted must certainly enure to all the accused persons even though they have not come before this court. Appropriate directions shall hence have to be issued. 19. In the result: a) These Crl.M.Cs are allowed. b) Cognizance taken against the petitioners as also the co-accused in all these cases is set aside. Crl.M.C. Nos.2746, 2883, 3137, 3155, 3156, 3157, 3166, 3091, 3094, 3097 & 3217 of 2008 17 c) The learned J.F.C.M, Nilambur is directed to forthwith transmit the records in S.T.No.192, 576, 578, 191,577 and 192 of 2008 to the court of the learned J.F.C.M-II, Perinthalmanna. The learned J.F.C.M-II, Perinthalmanna shall consider the complaints afresh in accordance with law, conduct necessary enquiry under Section 202 Cr.P.C and pass appropriate orders. 20. The learned J.F.C.M, Nilambur is directed to transmit the records forthwith to the learned J.F.C.M, Perinthalmanna. The complainant shall appear before the learned J.F.C.M-2, Perinthalmanna on 03/11/2008 to continue the proceedings. ## **(R.BASANT, JUDGE)** rtr/-