2007 (3) TMI 671 - SC - Companies Law

Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that 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. The question notes that the managing director or joint managing director would be admittedly in charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as managing director or joint managing director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141. Appeal dismissed.

Summary

Issues:
Challenge to order quashing proceedings under Section 138 of Negotiable Instruments Act, 1881 based on Section 141 - Whether respondents were in charge and responsible for the conduct of the business of the company - Interpretation of Section 141 for liability of Directors - Compliance with statutory requirements in complaint under Section 141.

Analysis:
The case involved an appeal against the order of a Single Judge allowing the respondents' applications to quash proceedings under Section 138 of the Negotiable Instruments Act, 1881. The complaint alleged dishonor of cheques issued by a company, with the respondents being directors/persons responsible for the company's business. The Metropolitan Magistrate dismissed the respondents' application, stating their status as directors should be decided based on evidence. The High Court, however, held that there was insufficient evidence to establish the respondents' roles in the company's business, thus quashing the proceedings.

The appellant argued that there was clear material showing the respondents' roles in the company. The High Court found the evidence lacking and quashed the proceedings against the respondents. Section 141 of the Act imposes liability on persons in charge of and responsible for the company's business at the time of the offense. Merely being a director does not automatically render one liable; specific allegations about their role must be made in the complaint. The complaint should clearly state how the directors are in charge and responsible for the company's business.

The legal position, as established in previous judgments, emphasizes the necessity of specific averments in a complaint under Section 141 to establish vicarious liability. Compliance with statutory requirements in the complaint is crucial to holding individuals vicariously liable for offenses committed by a company. The court reiterated that strict adherence to the statutory requirements is essential for imposing vicarious liability on individuals connected with a company. Consequently, the appeals were found without merit and dismissed.

In conclusion, the judgment delves into the interpretation of Section 141 of the Negotiable Instruments Act, emphasizing the need for specific averments in complaints to establish the liability of directors or persons responsible for a company's business. The court's decision underscores the importance of clear allegations regarding individuals' roles in the company to determine their liability for offenses committed by the company.