2011 (6) TMI 943 - HC - Indian Laws

Summary

Issues Involved:
1. Vicarious liability of Directors under Section 141 of the Negotiable Instruments Act.
2. Specific averments required in the complaint to implicate Directors.
3. Distinction between Managing Directors and other Directors concerning liability.

Detailed Analysis:

1. Vicarious Liability of Directors under Section 141 of the Negotiable Instruments Act:
The primary contention revolves around the applicability of vicarious liability under Section 141 of the N.I. Act to the Directors of a company. The Petitioners argued that the complaints lacked necessary averments to hold them criminally liable under Section 141. The section stipulates that every person in charge of and responsible for the conduct of the company's business at the time of the offence is deemed guilty. The Apex Court in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, and other cases, emphasized that merely being a Director is insufficient; specific roles and responsibilities must be detailed in the complaint.

2. Specific Averments Required in the Complaint to Implicate Directors:
The judgment extensively discussed the necessity of specific averments in the complaint to implicate Directors. The Apex Court in S.M.S. Pharmaceuticals Ltd. and subsequent cases held that a complaint must clearly state how and in what manner the Directors were responsible for the conduct of the company's business. The judgment highlighted that a bald statement that a Director is in charge and responsible for the company's conduct is inadequate. There must be clear and unambiguous allegations detailing the Director's involvement in the transaction.

3. Distinction Between Managing Directors and Other Directors Concerning Liability:
The judgment distinguishes between Managing Directors or Joint Managing Directors and other Directors. The Apex Court noted that Managing Directors are presumed to be in charge of and responsible for the company's business due to their position. Therefore, specific averments are not necessary to implicate them. Conversely, for other Directors, the complaint must specify their role in the conduct of the company's business. The judgment reaffirmed this distinction, emphasizing that liability depends on the actual role played by the Director, not merely their designation.

Conclusion:
The court concluded that the complaints against the Petitioners lacked the necessary specific averments to hold them liable under Section 141 of the N.I. Act. The averments in the complaints were deemed insufficient as they did not detail the specific roles and responsibilities of the Directors. Consequently, the petitions were allowed, and the complaints against the Petitioners (Directors) were quashed. However, proceedings against other accused, such as the Company, Managing Director, Joint Managing Director, or the signatory of the cheque, were to continue in accordance with the law.