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2023 (8) TMI 599 - SC - Indian LawsDishonour of Cheque - statutory notice of demand was not served on the accused - vicarious liability of directors - Section 141 of the NI Act - HELD THAT - Sub-section 1 of Section 141 of the NI Act required the complainant to aver that the present appellants at the time of the commission of the offence were in charge of, and were responsible to the company for the conduct of the business of the company. In the present case, all that the second respondent has alleged is that the appellants were liable for transactions of the company and that they were fully aware of the issuance of the cheques and dishonour of the cheques. The compliance with the requirements of sub-Section 1 of Section 141 N.I. Act was made by the second respondent. The most important averment which is required by sub-Section (1) of Section 141 of the NI Act is that the directors were in charge of, and were responsible for the conduct of the company. The appellants are neither the signatories to the cheques nor are wholetime directors - the appeal must succeed and the impugned Order is quashed and set aside, only in so far as the present appellants are concerned. Whether the second respondent has incorporated the averments which are necessary to be incorporated in a complaint under Section 138 of the NI Act in view of sub-section 1 of Section 141 of the NI Act? - HELD THAT - There is non-compliance on the part of the second respondent with the requirements of sub-section 1 of Section 141 of the NI Act - It is noted that we are dealing with the appellants who have been alleged to be the Directors of the accused No.1 company. We are not dealing with the cases of a Managing Director or a wholetime Director. The appellants Have not signed the cheques. In the facts of these three cases, the cheques have been signed by the Managing Director and not by any of the appellants. Section 141 is an exception to the normal rule that there cannot be any vicarious liability when it comes to a penal provision. The vicarious liability is attracted when the ingredients of sub-section 1 of Section 141 are satisfied. The Section provides that every person who at the time the offence was committed was in charge of, and was responsible to the Company for the conduct of business of the company, as well as the company shall be deemed to be guilty of the offence under Section 138 of the NI Act - Merely because somebody is managing the affairs of the company, per se, he does not become in charge of the conduct of the business of the company or the person responsible for the company for the conduct of the business of the company. For example, in a given case, a manager of a company may be managing the business of the company. Only on the ground that he is managing the business of the company, he cannot be roped in based on sub-section 1 of Section 141 of the NI Act. It is apparent that the words was in charge of and was responsible to the company for the conduct of the business of the company cannot be read disjunctively and the same ought be read conjunctively in view of use of the word and in between. The submission made by the learned counsel appearing for the second respondent that these averments substantially comply with sub-section (1) of Section 141 of the NI Act, cannot be accepted. The impugned judgment is set aside insofar as the appellants are concerned - appeal allowed.
Issues Involved:
1. Whether the complaint under Section 138 of the NI Act against the appellants was maintainable. 2. Whether the statutory notice of demand was served on the accused. 3. Whether the necessary averments under Section 141(1) of the NI Act were made in the complaint. Summary: Issue 1: Maintainability of the Complaint under Section 138 of the NI Act The appellants, who were Accused Nos. 5, 6, and 7 in the complaint, filed a petition under Section 482 of the Code of Criminal Procedure, 1973, for quashing the complaint. The High Court dismissed this petition. The appellants argued that the mandatory averments required under sub-section (1) of Section 141 of the NI Act were not made. The complaint stated that the appellants were directors of the first accused company, and the cheques were signed by Accused No. 2, the Managing Director. However, the complaint failed to aver that the appellants were in charge of and responsible for the conduct of the business of the company at the time of the offence. The Supreme Court found that the necessary averments under Section 141(1) of the NI Act were not made, and thus, the complaint was not maintainable against the appellants. Issue 2: Service of Statutory Notice of Demand The second respondent admitted in the complaint that the statutory notice of demand was not served on the accused, relying on returned postal covers. The Supreme Court noted that the service of notice of demand is a condition precedent for filing a complaint under clause (c) of Section 138 of the NI Act. The failure to serve the notice was a ground for the complaint to fail. Issue 3: Necessary Averments under Section 141(1) of the NI Act The Supreme Court examined the averments in the complaints and found that they did not comply with the requirements of Section 141(1) of the NI Act. The complaints merely stated that the appellants were managing the company and were in charge of the day-to-day affairs but did not specify that they were responsible for the conduct of the business of the company. The Court emphasized that the words "in charge of" and "responsible to the company for the conduct of the business of the company" must be read conjunctively. The complaints lacked the necessary averments to attract vicarious liability under Section 141(1) of the NI Act. Conclusion: The appeals were allowed, and the impugned orders of the High Court were quashed and set aside insofar as the appellants were concerned. The complaints pending in the Court of Judicial Magistrate, First Class, Nandyal, were quashed against the appellants. The Supreme Court reiterated the importance of making specific averments to establish vicarious liability under Section 141(1) of the NI Act.
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