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2014 (8) TMI 1191 - SC - Indian LawsDishonor of Cheque - section 138 of NI Act - summon order - appellant though they were not directly involved nor dealt with the matter of the company, they were impleaded as accused in the petition under Section 138 Negotiable Instrument Act - HELD THAT - It is clear that merely being a Director of a company is not sufficient to make the person liable under Section 141 of the Act, till it is shown that the said Director was in- charge of and responsible for the conduct of his business. The Court below and the High Court erred in not appreciating the fact that the complainant in the mechanical way cited the names of the appellants which alleged to have been obtained from the website of the Ministry of Corporate Affairs and unnecessary dragged the appellants in litigation who were not directly charged or responsible for the company for the conduct of business. The requirement of Section 141 of the Negotiable Instrument Act is against the persons responsible for the conduct or business of the company at the relevant time. In absence of such allegation against the appellants, the complainant misused the mandate of Section 138 of the Negotiable Instrument Act. Appeal allowed - decided in favor of appellant.
Issues:
1. Whether the High Court correctly refused to exercise power under Section 482 Cr.P.C. to set aside the order dated 3rd October, 2012 and quash the criminal complaint? 2. Whether the appellants, as independent non-executive directors, can be held liable under Section 138 of the Negotiable Instrument Act for dishonored cheques issued by the company? 3. Whether the High Court's observation regarding the control and responsibility of the appellants over the business affairs of the company is justified? 4. Whether the complainant misused the mandate of Section 138 of the Negotiable Instrument Act by implicating the appellants who were not directly involved in the company's business affairs? Analysis: 1. The Supreme Court analyzed the High Court's refusal to exercise power under Section 482 Cr.P.C. to set aside the order dated 3rd October, 2012, and quash the criminal complaint. The High Court based its decision on the complaint's specific averment that the appellants were in full and effective control of the business affairs of the company. However, the Supreme Court held that the complaint misused the mandate of Section 138 of the Negotiable Instrument Act by implicating the appellants, who were independent non-executive directors not directly responsible for the company's business conduct. Therefore, the Supreme Court set aside the High Court's order and quashed the criminal complaints. 2. The issue of whether the appellants, as independent non-executive directors, could be held liable under Section 138 of the Negotiable Instrument Act for dishonored cheques was addressed. The Supreme Court referred to the case of S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and Another, where it was clarified that merely being a director of a company is not sufficient to establish liability under Section 138. The person accused must be in charge of and responsible for the company's business conduct at the relevant time. Since the appellants were not directly involved in the company's operations, the Supreme Court held that they could not be held liable under Section 138. 3. The High Court's observation regarding the control and responsibility of the appellants over the business affairs of the company was reviewed. The High Court noted that the complaint alleged that the appellants were in control of the business affairs, leading to the refusal to quash the complaint. However, the Supreme Court emphasized that the requirement of Section 141 of the Negotiable Instrument Act is against persons responsible for the company's business conduct at the relevant time. Since the appellants were not directly charged or responsible for the company's operations, the Supreme Court found the High Court's observation erroneous. 4. The Supreme Court addressed the issue of whether the complainant misused the mandate of Section 138 of the Negotiable Instrument Act by implicating the appellants. The Court found that the complainant mechanically cited the names of the appellants, obtained from the Ministry of Corporate Affairs website, without establishing their direct involvement in the company's business affairs. As the appellants were not responsible for the conduct of the company's business, the Supreme Court held that the complainant misused the provisions of the Act. Consequently, the Supreme Court set aside the High Court's order and quashed the criminal complaints.
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