2020 (1) TMI 1507 - HC - Indian Laws

Dishonor of Cheque - insufficiency of funds - discharge of debt - materials which the accused may produce even before the commencement of trial - vicarious liability of the Director - HELD THAT - The document viz. Form-32, a certified copy of which is filed by the Petitioner, would reveal that the Petitioner was not the Director who was in charge and responsible for the day to day affairs of the Company during the relevant period when the cheque was issued. The Honourable Supreme Court in the case of SMS PHARMACEUTICALS LTD. VERSUS NEETA BHALLA 2005 (9) TMI 304 - SUPREME COURT has held that with a view to make a Director of a Company vicariously liable for the acts of the Company, it was obligatory on the part of the complainant to make specific allegations as are required in law. The well settled principle laid down by the Honourable Supreme Court, in a catena of decisions is squarely applicable to the facts of the case on hand, as in this case also there is only a bald and vague allegations made against the Petitioner and such bald and vague allegations itself is not sufficient without making any specific averment as to as to how and in what manner the Petitioner was responsible for the conduct of the business of the Company - petition allowed.

Summary

Issues:
Petition to quash proceedings under Section 138 of the Negotiable Instruments Act based on vicarious liability of a Director.

Analysis:
The petitioner, a Director of a company, sought to quash proceedings under Section 138 of the Negotiable Instruments Act. The complainant alleged that the petitioner, along with others, issued dishonored cheques. The petitioner contended that he had resigned from directorship before the cheques were issued and was not involved in day-to-day affairs. The complaint lacked specific allegations against the petitioner regarding his involvement in the offense. The respondent argued that the petitioner's resignation does not absolve him of vicarious liability. The court considered the petitioner's resignation and relevant case laws.

The court noted that the complaint only mentioned the petitioner as a Director without specific allegations of his involvement in the offense. Citing previous judgments, the court emphasized the need for clear and unambiguous allegations against a Director to establish vicarious liability. The court referred to Form-32, showing the petitioner's resignation before the cheque issuance, to determine his lack of involvement in the company's affairs during the relevant period.

Relying on Supreme Court decisions, the court highlighted the necessity of specific averments to hold a Director vicariously liable. The court found the allegations against the petitioner to be vague and insufficient, especially considering his early resignation. Consequently, the court quashed the proceedings against the petitioner, emphasizing the importance of clear allegations to establish vicarious liability. The court directed expedited trial for the remaining accused in the case.