2007 (1) TMI 257 - SC - Companies Law

Dishonour of cheque for insufficiency of funds - Held that - No other option but to hold that the allegations made in the complaint petitions even if are taken to be correct in their entirety do not disclose any offence as against the appellant herein. The proceedings against him thus should have been quashed by the High Court. The impugned judgment therefore cannot be sustained which is set aside accordingly. The appeal is allowed.

Issues Involved:
1. Liability of a director under Section 141 of the Negotiable Instruments Act.
2. Validity of the complaint against the appellant who resigned before the issuance of cheques.
3. Requirements for vicarious liability under Section 141 of the Negotiable Instruments Act.

Detailed Analysis:

1. Liability of a Director under Section 141 of the Negotiable Instruments Act:

The judgment discusses the conditions under which a director can be held liable under Section 141 of the Negotiable Instruments Act. Section 141 postulates constructive liability on the part of the directors or other persons responsible for the conduct of the business of the company. For a director to be held liable, it must be shown that they were in charge of and responsible for the conduct of the business of the company at the time the offence was committed. The court emphasized that a strict construction of the statute is necessary to establish vicarious liability.

2. Validity of the Complaint Against the Appellant Who Resigned Before the Issuance of Cheques:

The appellant argued that he had resigned from the directorship of the company before the issuance of the cheques and thus should not be held liable. The court noted that the appellant had resigned effective from June 19, 1997, and the cheques were post-dated, issued through a letter dated May 10, 1997. The High Court had dismissed the appellant's petition on the grounds that the matter required further probe by way of trial, as the appellant was still a director on May 10, 1997, the date on which the cheques were issued.

3. Requirements for Vicarious Liability under Section 141 of the Negotiable Instruments Act:

The court analyzed the requirements for vicarious liability under Section 141, emphasizing that specific allegations must be made in the complaint to establish that the director was responsible for the conduct of the business of the company at the relevant time. The court referred to the case of S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, which clarified that merely holding a designation or office in a company is not sufficient to cast criminal liability. The liability depends on the role played in the affairs of the company and not merely on the designation or status.

The court also referred to Sabitha Ramamurthy v. R.B.S. Channabasavaradhya, stating that vicarious liability can only be inferred if the requisite statements are made in the complaint petition to make the accused vicariously liable for the offence committed by the company.

Conclusion:

The Supreme Court concluded that the allegations made in the complaint petitions, even if taken to be correct in their entirety, do not disclose any offence against the appellant. The court held that the High Court should have quashed the proceedings against the appellant, as the complaint did not satisfy the requirements of Section 141 of the Negotiable Instruments Act. Consequently, the appeal was allowed, and the impugned judgment of the High Court was set aside.

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