2004 (2) TMI 713 - HC - Indian Laws

Summary

Issues Involved:
1. Quashing of proceedings under Section 138 of the Negotiable Instruments Act.
2. Requirement of notice to the petitioner under Section 138(b) of the Negotiable Instruments Act.
3. Liability of a Non-Executive Director under Section 138 of the Negotiable Instruments Act.
4. Specific allegations required in the complaint against directors for offences under Section 138 of the Negotiable Instruments Act.

Detailed Analysis:

1. Quashing of Proceedings under Section 138 of the Negotiable Instruments Act:
The petitioner, an advocate and Non-Executive Director of a company, sought to quash the proceedings arising from Criminal Case No. 206/S of 1998, under Section 138 of the Negotiable Instruments Act, pending before the Metropolitan Magistrate, 40th Court at Girgaum, Mumbai. The petitioner contended that he was not liable for the dishonoured cheque as he had resigned from the Board of Directors before the cheque was issued.

2. Requirement of Notice to the Petitioner under Section 138(b) of the Negotiable Instruments Act:
The court noted that the complainant had not issued any notice to the petitioner as required by Sub-clause (b) of the proviso to Section 138 of the Negotiable Instruments Act. The statutory notice of demand was addressed only to accused Nos. 1 and 2, not the petitioner. The court held that the absence of notice to the petitioner vitiated the proceedings against him, referencing the judgment in Bipin J. Shah v. Smt. Niru B. Mehta and Anr., 2001 (2) M.L.J. 632.

3. Liability of a Non-Executive Director under Section 138 of the Negotiable Instruments Act:
The petitioner argued that he was merely a Non-Executive Director and had resigned before the cheque was issued. The court found substance in this argument, noting that the petitioner was not in charge of the day-to-day affairs of the company. The court referenced the Supreme Court's decision in K.P.G. Nair v. Jindal Menthol India Ltd., (2001) 10 SC 218, which held that a person could only be proceeded against if they were in charge of and responsible for the conduct of the company's business at the time the offence was committed.

4. Specific Allegations Required in the Complaint Against Directors:
The court emphasized that the complaint must contain specific allegations regarding the part played by the directors in the transactions. Mere bald statements that the petitioner was in charge of and responsible for the conduct of the company's business were insufficient. The court referred to the Karnataka High Court's decision in Nucor Wires Ltd. v. H.M.T. International Ltd., 1998 91 Comp Cas 856, which required clear and unambiguous allegations about the directors' involvement in the offence. The court concluded that the complaint did not provide specific details of the petitioner's involvement, thus failing to substantiate his liability under Section 138.

Conclusion:
The court quashed the proceedings against the petitioner in Criminal Case No. 206/S of 1998 and Criminal Case No. 208/S of 1998, pending before the Metropolitan Magistrate, 40th Court at Girgaum, Mumbai. The court clarified that the proceedings could continue against the other accused. The interim stay granted by the court was vacated, and the writ was directed to be sent to the trial court immediately.