2013 (5) TMI 951 - HC - Indian Laws

Dishonor of Cheque - Vicarious liability - not involve in day to day conduct of the business - Quashing the summon orders passed by Metropolitan Magistrate in the complaint u/s 138 r/w sec. 141 of the Negotiable Instruments Act 1881 against the Company Secretary of the accused Company - HELD THAT - The prime objective of this Court is to remind all the Metropolitan Magistrates in Delhi to carefully scrutinize all the complaint cases being filed under Section 138 r/w 141 of the Act against the accused companies at the pre-summoning stage and make sure that notice be directed only to those directors or employees of the company who satisfy the principles laid down in the aforesaid judgments. Summons must be issued only after giving due consideration to the allegations and the materials placed on record by the complainant. Undeniably as per the aforesaid legal pronouncements Managing Director and the Joint Managing Director are deemed to be vicariously liable for the offence committed by the company because of the position they hold in the company. Problem arises in cases where all the persons holding office in the company are sought to be prosecuted by the complainant irrespective of whether they played any specific role in the incriminating act. One can also not lose sight of the fact that once such innocent persons are summoned they have no choice but to seek bail and face the ordeal of trial. Many of such persons also approach the High Court under Section 482 Cr.P.C. to seek quashing of the summoning order and the complaint filed against them and this further increases the burden on the already overburdened Courts. Therefore With a view to ensure that the Metropolitan Magistrates dealing with the complaint cases filed under Section 138 r/w Section 141 of the Negotiable Instruments Act have a clear and complete picture of the persons arrayed by the complainant so as to hold them vicariously liable for the commission of the offence by the accused company court is inclined to direct that the Magistrates must seek copies of Form-32 from the complainant to prima facie satisfy the Court as to who were the directors of the accused company at the time of commission of the alleged offence and on the date of filing of the complaint case. In addition to the above the Magistrates must also seek information as given which is to be annexed by the Complainant on a separate sheet accompanying the complaint. The Registry is directed to send a copy of this order to all the Metropolitan Magistrates posted in various district courts of Delhi for necessary compliance. Registry is further directed to send a copy of this order to all the Bar Associations of various district courts of Delhi so that they can apprise the members of the Bar about the aforesaid directions.

Summary

Issues:
Quashing of summoning order under Section 482 of Cr. P.C. in complaint cases under Section 138 of the Negotiable Instruments Act, 1881.

Analysis:
The petitioner, a Company Secretary, seeks quashing of summoning order in complaint cases under Section 138 of the Negotiable Instruments Act, 1881. The petitioner argues that he is not involved in day-to-day functioning of the company and had no role in issuing the cheques in question. The complainant failed to specify how the petitioner was responsible for the company's conduct. The legal position requires specific averments in complaints to establish vicarious liability under Section 141 of the Act. Merely holding a position in the company does not automatically make one liable. The court highlighted the need for complainants to make clear allegations against individuals to establish liability. Previous judgments emphasized the importance of averments detailing the accused's role in the company's conduct of business.

The court discussed the purpose of Chapter XVII of the Negotiable Instruments Act, 1881, introduced to penalize dishonor of cheques due to insufficient funds. The amendments aimed at expediting cases related to dishonored cheques and enhancing penalties for offenders. However, the court noted the trend of filing numerous complaints against companies, leading to a burden on criminal courts. Section 141 holds individuals responsible if they were in charge of the company's business at the time of the offense. Specific averments are crucial to establish vicarious liability.

The court reiterated principles from previous judgments, emphasizing the need for complainants to make specific averments to establish vicarious liability. Managing Directors and Joint Managing Directors are deemed vicariously liable due to their positions. The court directed Metropolitan Magistrates to scrutinize complaints carefully and issue summonses only to individuals meeting the criteria set by legal pronouncements. The court highlighted the burden on innocent directors and employees summoned without proper basis, leading to unnecessary trials and appeals.

To ensure clarity in cases under Section 138 r/w Section 141 of the Negotiable Instruments Act, the court directed Magistrates to obtain Form-32 copies from complainants to identify directors at the time of the offense. Additional information was required to establish the roles of individuals sought to be vicariously liable. The court's directions aimed to streamline the process and prevent summoning of individuals without proper justification, effective from 1st July 2013. The Registry was instructed to disseminate the order to Metropolitan Magistrates and Bar Associations for compliance and awareness.