National Law Institute University

Case Analysis

K.K. Ahuja
vs.
V.K. Vora and Anr.
[(2009)10SCC48]

Submitted To: Prof.(Dr.) S. Surya Prakash

Professor of Labour Law

Submitted By:Alok Mishra

2011 B.A.LL.B 36
1

Table of Contents
Brief Facts of Case.........................................................................................................................4
Issue................................................................................................................................................4
Contention on Behalf of Appellant.................................................................................................5
Contention on Behalf of Respondent.............................................................................................5
Test Given by Apex Court..............................................................................................................5
Section 141 in The Negotiable Instruments Act, 1881...................................................................6
Relation of This Case with Minimum Wages Act..........................................................................7
Ratio Decidendi..............................................................................................................................7
Case Which Involve in The Process Of Judgement.....................................................................7
Observation of Supreme Court.......................................................................................................8
Decision of Supreme Court............................................................................................................8
Conclusion......................................................................................................................................9

IN THE SUPREME COURT OF INDIA

Criminal Appeal No. 1130-31 of 2003

Decided On: 06.07.2009

Appellants: K.K. Ahuja

Vs.
Respondent: V.K. Vora and Anr.

(2009)10SCC48

Hon'ble Judges/Coram:
R.V. Raveendran and Mukundakam Sharma, JJ..

Case on Dishonour of cheques and companies liability

Acts/Code: Negotiable Instruments Act, 1881; Indian Penal Code (IPC); Code of Criminal
Procedure (CrPC); Companies Act, 1956
Relevant Sections: Negotiable Instruments Act, 1881 - Section 138, Section 141, Section
141(1),Section 141(2);
Indian Penal Code (IPC) - Section 420;
Code of Criminal Procedure (CrPC) - Section 482;
Companies Act, 1956 - Section 2(24), Section 2(45), Section 5, Section 291

Brief Facts of Case

K.K. Ahuja, the appellant, had filed two criminal complaints[The first complaint was in regard
to dishonour of five cheques and The second complaint was in regard to dishonour of three
cheques], under Section 138 of the NI Act read with Section 141 of the Act and Section 420 of
the Indian Penal Code, against M/S Motorol Speciality Oils Ltd. (the Company), and eight of
its officers (Chairman, four Directors, VP Finance, General Manager and Deputy General
Manager (DGM) respectively), in the Court of the Metropolitan Magistrate, Delhi, averring
that at the time of the commission of the offence, all the eight officers were in-charge of and
responsible for the conduct of the day-to-day business of the Company and thus deemed to be
guilty under Section 138, read with, Section 141 of the NI Act.
The accused DGM moved to HIGH COURT under Section 482 Cr.P.C. to quash the proceedings
against him on the ground that as DGM of the Company he was not in-charge of the conduct of
the day-to-day business of the Company. This petition was allowed by the Delhi High Court on
the ground that he was neither signatory to the cheques nor a party to the decision to allow the
cheques to be dishonoured,
Which was then challenged before the Supreme Court in this petition

Issue
(i) who are the persons who are responsible to the company for the conduct of the business of
the company, and
(ii) who could be said to be in charge and was responsible to the company for the conduct of the
business of the company.

Contention on Behalf of Appellant

The Contention of Advocate on Behalf of appellant was that having regard to the specific
averment in the complaint that the accused 2 to 9 were in charge of and responsible for the
conduct of day to day business of the company, the order summoning the first respondent could
not have been quashed under Section 482 Cr.P.C.
It is also submitted that at the stage of summoning the accused, when evidence was yet to be led
by the parties, the High Court committed an error in quashing the order summoning the first
respondent, on the basis of an unwarranted assumption that the first respondent was not
responsible for or involved in the conduct of the business of the company.

Contention on Behalf of Respondent

The Contention of advocate on behalf of respondent was not given in the case.

Test Given by Apex Court

The apex court has provided a two-pronged test to examine whether a person can be deemed
responsible.
1. The first is a legal, statute-based test where it has to be proved that the person is
responsible for the conduct of the business of the company.
2. The second is a fact-based test, where through specific instances, the complainant has to
allege that the accused was in control of the day-to-day business. If a person does not
satisfy the first test, neither is he required to meet the second test nor can he be held
liable.

Section 141 in The Negotiable Instruments Act,

1881

Section 141 [Offences by companies]

(1) If the person committing an offence under section 138 is 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 person liable to punishment
if he proves that the offence was committed without his knowledge, or that he had exercised all
due diligence to prevent the commission of such offence: 22 [Provided further that where a
person is nominated as a Director of a company by virtue of his holding any office or
employment in the Central Government or State Government or a financial corporation owned
or controlled by the Central Government or the State Government, as the case may be, he shall
not be liable for prosecution under this Chapter.]
(2) Notwithstanding anything contained in sub-section (1), where any 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 any 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.]

Relation of This Case with Minimum Wages Act

The words "every person who, at the time of the offence was committed, was in charge of, and
was responsible for the conduct of the business of the company" occurs not only in
Section 141(1) of the Act but in several enactments dealing with offences by companies,
Section 22C of Minimum Wages Act, 1948, Section 86A of the Employees State Insurance Act,
1948, Section 14A of Employees Provident Fund and Miscellaneous Provisions Act, 1952,
Section 29 of Payment of Bonus Act, 1965

Ratio Decidendi
Deputy General Manger is not a person who is responsible to the company for the conduct of
the business of the company and hence cannot be made liable under Section 141(2) for
dishonour of cheque unless necessary averments relating to consent/connivance/negligence
should have been made.

Case Which Involve in The Process Of

Judgement
In Girdhari Lal Gupta v. D.N. Mehta 1 followed in State of Karnataka v Pratap Chand 2
and Smt. Katta Sujatha vs. Fertilizers & Chem. Travancore Ltd. and Anr.3 SC Observe that
Section 141 uses the words "was in charge of, and was responsible to the company for the
conduct of the business of the company". It is evident that a person who can be made
vicariously liable under Sub-section (1) of Section 141 is a person who is responsible to the
company for the conduct of the business of the company and in addition is also in charge of the
business of the company.
And HELD that,There may be many directors and secretaries who are not in charge of the
business of the company at all.
The meaning of the words "person in charge of the business of the company" was considered by
this Fertiliser & Chemicals Travancore Ltd. 4.
1 [1971]3SCR748
2 1981CriLJ595
3 MANU / SC / 0897 / 2002
4 (2002)7SCC655
7

This Court held that the words refer to a person who is in overall control of the day to day
business of the company. This Court pointed out that a person may be a director and thus
belongs to the group of persons making the policy followed by the company, but yet may not be
in charge of the business of the company; that a person may be a Manager who is in charge of
the business but may not be in overall charge of the business; and that a person may be an
officer who may be in charge of only some part of the business.

Observation of Supreme Court

The Supreme Court observed that to be liable, a person should fulfill the legal requirement of
being a person in law, responsible for the conduct of the business of the company . He should
also be in charge of the business of the company. The law lists such persons as managing
directors, whole-time directors, managers, company secretaries; but there is no mention of nonexecutive directors.
"For a certain kind of prosecutions, to the extent that a managing director or executive director
is designated and in charge of affairs of the company and that a non-executive director can
prove that he was not involved in the day-to-day operations of a company and that he has taken
positive steps to avoid the occurrence of any incident, he may not be directly held for gross
negligence," says Vyapak Desai, head of international litigation and dispute resolution practice
at Nishith Desai Associates .

Decision of Supreme Court

The Supreme Court held that other officers of the company, apart from those tabularized above,
cannot be made liable under Section 141(1) of the NI Act. Such officers can however be made
liable under Section 141(2), which provides for liability to corporate directors/officers who may
not be in-charge of the conduct of the business of the company, but nevertheless the offence
under Section 138 of the NI Act (dishonour of cheque) was committed with their consent or
connivance or due to their negligence. However, in such circumstances, specific averments must
be made in the complaint as to how and in what manner the accused was guilty of consent and
connivance or negligence.
Thus, Apex Court found no error/infirmity in the order quashing the summons as against the
first respondent who was the Deputy General Manager of the company which issued the
dishonoured cheque.
The appeals are therefore dismissed.

Conclusion
To conclude, the Supreme Court in K.K. Ahuja fine-tuned the principles relating to director and
officer liability for dishonour of cheques and built upon the policy laid down in the previous
case of S.M.S. Pharma. However, there continue to be some open issues as discussed above, and
the Court has left complainants with a somewhat insurmountable burden of averment as
outsiders to the company.