2015 (8) TMI 889 - SC - Companies Law

Dishonor of Cheque - Liability of Director - Cheque in name of Accused company-1 was issued to Appellant which was not honoured and in spite of statutory notice issued, no amount in respect of said cheque was paid Respondents filed petitions for quashing said complaint, which was allowed Held that - admitted position that simply because someone was Director in company, he cannot be held responsible in respect of cheque issued on behalf of company, but if concerned Director was in-charge of and was responsible to company for its conduct of business, he can be held to be guilty of offence under Section 138 of negotiable instruments act, 1881 Therefore, High Court ought not to have quashed proceedings against such directors High Court committed error by making observation that not single statement was made in complaint to effect that Accused Nos. 3 to10 were in-charge of day-to-day business of Accused No. 1 company thus, impugned order of High Court set aside and Appeals allowed Decide in favour of Appellant.

Summary

Issues:
1. Challenge to the order passed by the High Court quashing proceedings under Section 482 of the Code of Criminal Procedure.
2. Interpretation of Section 141(1) of the Negotiable Instruments Act, 1881 in relation to liability of individuals in a company.
3. Allegation of directors' involvement in day-to-day business and their liability under Section 138 of the Act.

Analysis:
Issue 1: The appellant challenged the order passed by the High Court quashing proceedings under Section 482 of the Code of Criminal Procedure. The High Court had allowed petitions filed under Section 482, quashing proceedings in C.C. No. 3022 of 2000 against some accused. The appellant, a newsprint and paper manufacturing company, had a business dealing with a company and its directors. A cheque issued by the company's Managing Director was dishonored, leading to a complaint. The High Court quashed proceedings against all accused except the company and the Managing Director. The appellant contended that the High Court erred in quashing proceedings partially. Despite notices, no respondents appeared, indicating their intention. The Supreme Court set aside the High Court's order and directed the proceedings to continue promptly.

Issue 2: The appellant argued that all accused directors were liable under Section 138 of the Act. Section 141(1) holds individuals in charge of a company's business responsible for offenses committed by the company. The complaint alleged that accused directors were in charge of the company's day-to-day business. The High Court erroneously stated that there was no mention of the directors' roles in the complaint. The Supreme Court emphasized that directors responsible for a company's business can be held accountable under Section 138. The Court found the High Court's observation incorrect and allowed the criminal appeals, emphasizing the directors' involvement in the company's operations.

Issue 3: The Supreme Court noted that the complaint averred that accused directors were in charge of the company's day-to-day business. Being a director alone does not establish liability, but being in charge of the company's business does. The Court found the High Court's observation regarding the lack of mention of directors' roles in the complaint erroneous. Due to the allegations of directors' involvement in the company's operations, the Supreme Court held that there was no reason to spare them. The Court set aside the High Court's order and directed prompt commencement of proceedings against the accused directors.