- 1 - HC-KAR NC: 2025:KHC:27683 CRL.P No. 8673 of 2022 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 21ST DAY OF JULY, 2025 BEFORE THE HON'BLE MR. JUSTICE S.R.KRISHNA KUMAR CRIMINAL PETITION NO. 8673 OF 2022 BETWEEN: 1. MR. VAISHAK BABU S/O. P K CHANDRASHEKHAR BABU, M/S INDIRANAGAR CHIT FUNDS AND TRADING COMPANY LTD., NO.258, 6TH CROSS, I STAGE, INDIRANAGAR, BANGALORE-560 038. 2. MRS. VANITHA BABU W/O. P K CHANDRASHEKHAR BABU, M/S INDIRANAGAR CHIT FUNDS AND TRADING COMPANY LTD., NO.258, 6TH CROSS, I STAGE, INDIRANAGAR, BANGALORE-560 038. THE PETITIONERS ARE NOT STAYING IN THE UNDER MENTIONED ADDRESS NO.44, 1ST 'A' CROSS, AECS LAYOUT ROAD, NEAR ISRO, RMV II STAGE, BANGALORE - 560 094. …PETITIONERS (BY SRI. UNNIKRISHNAN M.,ADVOCATE) AND: SMT. TARANNUM FAYAZ W/O. FAYAZ, RESIDENT OF C/O. NOOR JAHAN, WIFE OF LATE ABDUL SALAM, NO. 104, BEHIND MOSQUE, 6TH CROSS, Digitally signed by CHANDANA B M Location: High Court of Karnataka - 2 - HC-KAR NC: 2025:KHC:27683 CRL.P No. 8673 of 2022 BASAVANAGUDI, SHIMOGA. REPRESENTED BY HER GPA HOLDER SMT. NOOR JAHAN, W/O. LATE ABDUL SALAM, NO. 104, BEHIND MOSQUE, 6TH CROSS, BASAVANAGUDI, SHIMOGA. …RESPONDENT (BY SRI. RAGHAVA P., ADVOCATE) THIS CRL.P. IS FILED U/S.482 CR.P.C. PRAYING TO QUASH ALL PROCEEDINGS IN C.C.NO.387/2022 i.e ANNEXURE-A DATED 20.05.2022 PRL. SENIOR CIVIL JUDGE AND CJM, SHIAMOGGA PENDING AGAINST THE PETITIONERS IN PURSUANCE T O THE COMPLAINT FILED BY THE RESPONDENT AND ETC., THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN 'B' GROUP, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE S.R.KRISHNA KUMAR ORAL ORDER In this petition, petitioners-accused Nos.4 and 5 in C.C.No.387/2021 on the file of the Prl. Senior Civil Judge and CJM, Shivamogga, seek quashing of the impugned proceedings and for other reliefs. 2. The material on record discloses that the respondent- complainant instituted the aforesaid proceedings against M/s. Indiranagar Chit Funds and Trading Company Limited and six - 3 - HC-KAR NC: 2025:KHC:27683 CRL.P No. 8673 of 2022 accused persons for the alleged offences punishable under Section 138 of the N.I. Act. In the said proceedings, the petitioners who are son and mother, respectively were arraigned as accused Nos.4 and 5 and they are before this Court by way of the present petition seeking quashing of the impugned proceedings. 3. Heard learned counsel for the petitioners and learned counsel for the respondent and perused the material on record. 4. In addition to reiterating the various contentions urged in the memorandum of petition and referring to the material on record, learned counsel for the petitioners submits that the petitioners-accused Nos.4 and 5 are not Directors of accused No.1 – Company and as such, the petitioners could not have been arraigned as accused persons under Section 141 of the N.I. Act and the impugned proceedings qua the petitioners deserve to be quashed. It is submitted that in addition to the fact that the petitioners are not signatories to the subject cheques, which were involved in the impugned proceedings, the petitioners had no role to play in the subject transactions nor were they incharge of the day-to-day affairs of accused No.1-Company or the conduct of its business and in the absence of necessary pleadings in the - 4 - HC-KAR NC: 2025:KHC:27683 CRL.P No. 8673 of 2022 complaint defining and explaining the role and involvement of the petitioners in the subject transaction and affairs/business of the Company, the impugned proceedings qua the petitioners deserve to be quashed. In support of his submissions, he places reliance upon a judgments of the Apex Court in the following cases: i) Kamalkishor Shrigopal Taparia Vs. India Ener-gen Private Limited and another – (2025) 7 SCC 383. ii) Hitesh Verma Vs. M/s. Health Care at Home India Private Limited and others – 2025 SCC OnLine SC 528. 5. Per contra, learned counsel for the respondent- complainant submits that there is no merit in the petition and that the same is liable to be dismissed. 6. I have given my anxious consideration to the rival submissions and perused the material on record. 7. Before adverting to the rival submissions, it would be necessary to extract the relevant portions of the impugned complaint, which are as under: “3. It is submitted that the accused No.1 is the registered company registered under the Indian Companies Act under the name and style M/s Indiranagar Chit Funds and Trading - 5 - HC-KAR NC: 2025:KHC:27683 CRL.P No. 8673 of 2022 Company Ltd., Bangalore and that the accused No.2 to 7 being related and/or close to each other are the directors of the Company – the accused No.1 M/s Indiranagar Chit Funds and Trading Company Ltd., No.258, 6th cross, I Stage, Indiranagar, Bangalore-560 038. The principal office of the company – the accused No.1 is as shown in the cause title supra. 4. It is submitted that the accused No.2 to 7 are the directors and holding different responsibilities in the company – the accused No.1 and that all the accused including the accused No.2 who is the Managing Director of the accused No.1- the company, are directly responsible for the day today affairs of the company of the accused No.1 and that all the accused persons have been in management, business administration and in charge of the affairs of the company – the accused No.1 in its day today affairs of the company and its business. 5. The accused No.4 is one of the Authorised Signatories of the Company – the accused No.1. Including the said authorised signatory all the accused persons are in charge of the day today affairs of the company being the directors of the company and that they are running the business of the company and hence all the accused are liable for their actions in law jointly and severally. 6. It is submitted that the accused no.1 company and its directors under the name of the first accused are running the business in chit fund. The complainant has been one of the participants of the chit funds transactions run by the accused persons. It is later learnt that the accused No.1 has no proper license and permission obtained from the Registrar of Chit Fund/District Registrar, Bangalore.” - 6 - HC-KAR NC: 2025:KHC:27683 CRL.P No. 8673 of 2022 8. A perusal of the allegations made in the complaint will indicate that it is alleged that the petitioners – accused Nos.4 and 5 are the Directors of accused No.1-Company and that petitioner No.1 – accused No.4 is one of the authorised signatories and that he had signed the subject cheques; however, the said allegation is palpably and factually incorrect in as much as the subject cheques do not contain/bear the signature of petitioner No.1-accused No.4 or petitioner No.2-accused No.5; so also, the petitioners – accused Nos.4 and 5 are not Directors of accused No.1-Company of which accused No.2 is undisputedly the Managing Director as can be seen from the Memorandum of Association and Articles of Association of accused No.1-Company, which have been produced by the petitioner in the present petition along with other relevant documents obtained from the Registrar of Companies; further, except bald, vague, omnibus, general and sweeping allegations, specific pleadings or allegations as regards the role/involvement of the petitioners – accused Nos.4 and 5 in the subject transaction and issuance of the subject cheques or their participation in the day-to-day affairs of accused No.1-Company or that the petitioners – accused Nos.4 and 5 had been in management, business, - 7 - HC-KAR NC: 2025:KHC:27683 CRL.P No. 8673 of 2022 administration and in-charge of the affairs of the company. Under these circumstances, I am of the view that the impugned proceedings qua petitioners-accused Nos.4 and 5 are not maintainable and the same deserve to be quashed. 9. In Kamalkishor Shrigopal Taparia’s case supra, the Hon’ble Apex Court held as under: “Analysis and Findings 14. This Court has consistently held that a mere designation as a Director does not conclusively establish liability under Section 138 read with Section 141 of the NI Act. Liability is contingent upon specific allegations demonstrating the Director's active involvement in the company's affairs at the relevant time. 15. This Court in National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal [National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330 : (2010) 1 SCC (Civ) 677 : (2010) 2 SCC (Cri) 1113 : (2010) 154 Comp Cas 313] observed : (SCC pp. 336, 338-39 & 345-46, paras 13, 22 & 39) “13. Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the Director. But the complaint should spell out as to how and in what manner Respondent 1 was in charge of or was responsible to the accused Company for the - 8 - HC-KAR NC: 2025:KHC:27683 CRL.P No. 8673 of 2022 conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability. *** 22. Therefore, this Court has distinguished the case of persons who are in charge of and responsible for the conduct of the business of the company at the time of the offence and the persons who are merely holding the post in a company and are not in charge of and responsible for the conduct of the business of the company. Further, in order to fasten the vicarious liability in accordance with Section 141, the averment as to the role of the Directors concerned should be specific. The description should be clear and there should be some unambiguous allegations as to how the Directors concerned were alleged to be in charge of and were responsible for the conduct and affairs of the company. *** 39. From the above discussion, the following principles emerge: (i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction. (ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company. (iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 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 along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with. - 9 - HC-KAR NC: 2025:KHC:27683 CRL.P No. 8673 of 2022 (iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred. (v) If the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with. (vi) If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in the complaint. (vii) 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.” (emphasis in original) 16. In N.K. Wahi v. Shekhar Singh [N.K. Wahi v. Shekhar Singh, (2007) 9 SCC 481 : (2007) 3 SCC (Cri) 203 : (2007) 137 Comp Cas 939] this Court in (para 8) observed : (SCC p. 483) “8. 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 in-charge 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 the facts of each case. But still, in the absence of any averment or specific evidence the net result would be that complaint would not be entertainable.” 17. In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89 : 2005 SCC (Cri) 1975 : (2005) 127 Comp Cas 563] , this Court laid down that mere - 10 - HC-KAR NC: 2025:KHC:27683 CRL.P No. 8673 of 2022 designation as a Director is not sufficient; specific role and responsibility must be established in the complaint. 18. In Pooja Ravinder Devidasani v. State of Maharashtra [Pooja Ravinder Devidasani v. State of Maharashtra, (2014) 16 SCC 1 : (2015) 3 SCC (Civ) 384 : (2015) 3 SCC (Cri) 378 : (2015) 190 Comp Cas 106] this Court while taking into consideration that a non- executive Director plays a governance role, and are not involved in the daily operations or financial management of the company, held that to attract liability under Section 141 of the NI Act, the accused must have been actively in-charge of the company's business at the relevant time. Mere Directorship does not create automatic liability under the Act. The law has consistently held that only those who are responsible for the day-to-day conduct of business can be held accountable. 19. Upon perusal of the record and submissions of the parties, it is evident that the appellant was neither a signatory to the dishonoured cheques nor was he actively involved in the financial decision-making of the company. Moreover, he resigned from the post of independent non-executive Director on 3-5-2017, duly notified through Forms DIR-11 and DIR-12 to the Registrar of Companies. 20. The complaints do not contain any specific averments detailing how the appellant was responsible for the dishonoured cheques. 21. The petitioner's role in the accused company was limited to that of an independent non-executive Director, - 11 - HC-KAR NC: 2025:KHC:27683 CRL.P No. 8673 of 2022 with no financial responsibilities or involvement in the day-to-day operations of the company. Furthermore, he was not responsible for the conduct of its business. 22. The legal precedents cited above, including Pooja Ravinder [Pooja Ravinder Devidasani v. State of Maharashtra, (2014) 16 SCC 1 : (2015) 3 SCC (Civ) 384 : (2015) 3 SCC (Cri) 378 : (2015) 190 Comp Cas 106] , clearly hold that non-executive Directors cannot be held liable under Section 138 of the NI Act unless specific evidence proves their active involvement. Conclusion 23. In view of the above observations, the appellant cannot be held vicariously liable under Section 141 of the NI Act. The complaints do not meet the mandatory legal requirements to implicate him. 24. Accordingly, the impugned judgment and order dated 6-8-2019 [Kamalkishor Shrigopal Taparia v. India Ener-Gen (P) Ltd., 2019 SCC OnLine Bom 1545] of the High Court is set aside, and the criminal proceedings against the appellant in Complaint Nos. 66/SS, 645/SS, 697/SS, 1595/SS (all) of 2017 pending against the present applicant before the learned Metropolitan Magistrate, 28th Court, Esplanade, Mumbai are hereby quashed. 25. The appeal is allowed. No order as to costs.” 10. In Hitesh Verma’s case supra, the Hon’ble Apex Court held as under: - 12 - HC-KAR NC: 2025:KHC:27683 CRL.P No. 8673 of 2022 “1. Leave granted. 2. Heard the learned counsel appearing for the parties. 3. The appellant is arraigned as accused no. 3 in the complaints filed by the first respondent under Section 138 of the Negotiable Instruments Act, 1881 (for short, “the 1881 Act”). Admittedly, the appellant is not a signatory to the cheque. Paragraphs 4 and 5 of the complaints subject-matter of these Appeals are similar which read thus: “4. It is submitted that the Accused No. 1 is a Company incorporated under the provisions of the Companies Act, 1956 and having its registered office at B-3, Basement, Building No. 4, Bhanot Apartment, LSC, Pushp Vihar, Madangir, Delhi 110 062 and is engaged in wholesale supply of pharmaceuticals and other related services. Printout of the details of the Accused No. 1 as available with the Registrar of Companies on the website of Ministry of Corporate Affairs is attached herewith and marked as ANNEXURE C-2. 5. It is stated that the Accused No. 2 and Accused No. 3 are the Directors and Authorized Signatories of the Accused No. 1 and are solely responsible for the day to day business activities and operations of Accused No. 1. It is pertinent to note that the Accused No. 2 under instructions and direction from the Accused No. 3 had signed the Cheque being no. 214804 on behalf of the Accused No. 1 in discharge of the legal liability arising out of the Invoice bearing no. DEL/18-19/0624 dated 31.08.2018.” 4. As the appellant is not a signatory to the cheque, he is not liable under Section 138 of the 1881 Act. As it is only the signatory to the cheque is liable under Section 138, unless the case is brought within the four corners of - 13 - HC-KAR NC: 2025:KHC:27683 CRL.P No. 8673 of 2022 Section 141 of the 1881 Act, no other person can be held liable. Section 141 reads thus: “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: 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.” - 14 - HC-KAR NC: 2025:KHC:27683 CRL.P No. 8673 of 2022 5. There are twin requirements under sub-Section (1) of Section 141 of the 1881 Act. In the complaint, it must be alleged that the person, who is sought to be held liable by virtue of vicarious liability, at the time when the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company. A Director who is in charge of the company and a Director who was responsible to the company for the conduct of the business, are two different aspects. The requirement of law is that both the ingredients of sub-Section (1) of Section 141 of the 1881 Act must be incorporated in the complaint. Admittedly, there is no assertion in the complaints that the appellant, at the time of commission of the offence, was in charge of the business of the company. Therefore, on a plain reading of the complaints, the appellant cannot be prosecuted with the aid of sub-Section (1) of Section 141 of the 1881 Act. 6. Accordingly, the impugned orders are set aside and the order taking cognizance of the complaints filed by the first respondent stands quashed and set aside only as against the present appellant who is arraigned as accused no. 3. We make it clear that we have made no adjudication on the merits of the complaints and all issues are left open to be decided by the Trial Court. 7. The Appeals are, accordingly, allowed on the above terms.” - 15 - HC-KAR NC: 2025:KHC:27683 CRL.P No. 8673 of 2022 11. In view of the aforesaid facts and circumstances, I am of the considered opinion that continuation of the impugned proceedings qua the petitioners – accused Nos.4 and 5 would amount to abuse of process of law warranting interference by this Court in the present petition. 12. In the result, I pass the following: ORDER i) The petition is allowed. ii) The impugned criminal proceedings in C.C.No.387/2022, pending before the Prl. Senior Civil Judge and CJM, Shivamogga, insofar as the petitioners are concerned, are hereby quashed. Sd/- (S.R.KRISHNA KUMAR) JUDGE YKL/ BMC