2010 (7) TMI 276 - HC - Companies Law

Whether accused No. 1 being a company, it is primarily liable for the alleged offence, in so far as the directors are concerned, they cannot be made vicariously liable, unless the complaint discloses the requirement of section 141 of the Act? Held that - The complaint discloses that accused No. 4 approached the complainant for financial assistance. It also discloses that accused Nos. 2 and 3 are the authorised signatories and accused No. 1 is a company. In so far as accused No. 5 is concerned, except reference, there is no specific averment as to how she is in charge and responsible for the affairs of the company. It can be said that the managing director by virtue of his office, becomes responsible, if the other directors who have signed the instrument, may also become liable, but other directors, will not automatically become liable. Only because they are directors, section 141 of the Act does not refer to the direction, but refers to the person, the person may be a director or not, but he must be in charge and responsible of the business of the company on the date of the commission of the offence. Complainant prima facie requires to mention in the complaint. 14. Considering the same, I find that, the proceedings in so far as this petitioner is concerned, are required to be quashed.

Summary

Issues:
Quashing of criminal proceedings against accused No. 5 in C.C. No. 1163 of 2010.

Analysis:
The respondent filed a complaint under section 200 of the Code of Criminal Procedure, 1973, alleging that accused No. 1 company, along with accused No. 4, borrowed a sum of Rs. 5,00,000 from the petitioner for business purposes. Accused Nos. 2 and 3, as authorised signatories of accused No. 1, issued a cheque for Rs. 50,000, which was returned by the banker with an "account closed" endorsement. The complainant issued a legal notice, but it was returned unserved. The complaint was filed after the statutory waiting period for an offence under section 138 of the Negotiable Instruments Act, 1881. The Magistrate ordered registration of a criminal case and issued summons against the accused, leading to this petition by accused No. 5.

The petitioner's counsel argued that directors cannot be vicariously liable unless the complaint meets the requirements of section 141 of the Act, emphasizing the need for specific averments against the person responsible for the company's business. On the other hand, the respondent's counsel contended that such details are not necessary at this stage and only a prima facie case needs to be established. The court referred to previous judgments, highlighting the importance of specific averments to establish liability under section 141 of the Act.

The court noted that the complaint lacked specific averments against accused No. 5 regarding her responsibility for the company's affairs. It clarified that merely being a director does not automatically make one liable; the person must be in charge and responsible for the business at the time of the offence. Since the complaint did not establish accused No. 5's involvement in the company's operations, the court ruled in favor of quashing the proceedings against her.

In conclusion, the court allowed the petition and quashed the proceedings against accused No. 5 in C.C. No. 1163 of 2010, emphasizing the necessity of specific averments to establish liability under section 141 of the Act.