2007 (7) TMI 405 - SC - Companies Law

Commission of an offence under section 138 of the Negotiable Instruments Act - Held that - Appeal allowed. Negotiation for obtaining financial assistance on behalf of the Company by its Directors itself is not an ingredient for the purpose of constituting an offence under section 138 of the Negotiable Instruments Act. Furthermore a vicarious liability on the part of a person must be pleaded and proved. It cannot be a subject-matter of mere inference.

Summary

Issues:
1. Vicarious liability of a director under section 138 of the Negotiable Instruments Act.
2. Interpretation of section 141 of the Negotiable Instruments Act for determining liability.
3. Requirement of pleading and proving vicarious liability.
4. Compliance with statutory requirements under section 141 for vicarious liability.

Analysis:

1. The case involved the vicarious liability of a director under section 138 of the Negotiable Instruments Act. The appellant was proceeded against for an alleged offence under section 138, with the complaint stating the company's business dealings and financial assistance obtained. The appellant contested that he was not a director at the relevant time, challenging the proceedings initiated against him.

2. The interpretation of section 141 of the Negotiable Instruments Act was crucial in determining liability. The High Court considered whether the appellant, as a director, fell under the provisions of section 141, which require individuals responsible for the company's day-to-day affairs to be liable. The court analyzed the involvement of all directors in negotiations and financial transactions to infer their responsibility for the company's operations.

3. The requirement of pleading and proving vicarious liability was emphasized. The Supreme Court highlighted that for showing vicarious liability of a director, it is essential to plead that the accused was responsible for the company's business conduct. Mere participation in negotiations or obtaining financial assistance does not automatically establish vicarious liability.

4. Compliance with statutory requirements under section 141 was a key aspect. The court noted that strict compliance with statutory requirements is necessary to establish vicarious liability. The judgment cited previous cases to emphasize the importance of clear statements of fact to infer vicarious liability and the consequences of failing to meet statutory requirements.

In conclusion, the Supreme Court set aside the impugned judgment, quashed the order taking cognizance, and allowed the appeal, emphasizing the need for strict compliance with statutory requirements to establish vicarious liability under the Negotiable Instruments Act.