2014 (11) TMI 1143 - HC - Indian Laws

Trial for an offence punishable under Sections 138/141 of the Negotiable Instruments Act - prosecuting any Director under section 138 N.I. Act - Held that - Mere allegation the accused in-charge of and responsible to the Company for the conduct of its day to day business without anything more as to the role of such Director in running the business is not sufficient and complaint should spell out as to how and in what manner such person was in charge of or was responsible to the accused Company in the conduct of its business. Going to the averment made in the complaint annexed with this application find it is the case of the complainant that accused no. 4 Sujit Chakravorti although along with other designated as non-Executive Director still they are on various Committees of the Board of Directors overseeing financial audit and other matters directly related to the conduct of the business of the accused no. 1 the Company. It was also alleged that they were all in charge of and responsible for the conduct and management of the day-to-day business and affairs of the accused no. 1 Kitply Industries Ltd. during the material time. Having regard to what have been stated in paragraph 4 of the complaint as aforesaid this court is of the opinion there is no lack of necessary averment as required for prosecuting any Director under section 138 N.I. Act with the aid of section 141 of the said Act in all the aforesaid criminal revisions. Here in this case there is specific averments that the present petitioner was in charge of and responsible for the conduct of the day to day affairs of the accused No. 1 the Company during the material time when the offence was committed. Thus criminal revisions under consideration stand dismissed

Summary

Issues:
Prosecution of a non-Executive and independent Director under Sections 138/141 of the Negotiable Instruments Act.

Analysis:
The petitioner argued that being a non-Executive and independent Director, he cannot be prosecuted under Section 138 of the Negotiable Instruments Act with the aid of Section 141 without specific details on his role in the company's conduct, citing relevant court decisions. He emphasized the evolving guidelines requiring independent Directors in public limited companies to prevent mismanagement and financial irregularities, supporting his defense.

The complainant opposed the quashing applications, asserting that the complaint's averments were sufficient to prosecute the petitioner under Section 138 N.I. Act with Section 141. The court considered both parties' arguments and referred to the strict interpretation of vicarious liability under Section 141 as established by the Supreme Court, emphasizing the need for specific details on the Director's role in the company's business conduct.

Upon reviewing the complaint's contents alleging the petitioner's involvement in overseeing financial and audit matters of the company, the court found the necessary averments present to prosecute the Director under Section 138 N.I. Act with the aid of Section 141. The court also referred to a Supreme Court decision outlining the essential requirements for prosecuting offenses under Section 138 with Section 141, noting that specific allegations of the Director's responsibility for the company's affairs were made in this case.

Consequently, all six criminal revisions were dismissed and disposed of, with the directive for the Criminal Section to provide certified copies of the order to the parties promptly. The judgment clarified the legal standards for prosecuting Directors under the Negotiable Instruments Act, emphasizing the importance of detailing the Director's role in the company's operations to establish liability under Section 141.