2020 (9) TMI 1215 - HC - Indian Laws

Dishonor of Cheque - prosecution of Directors and others for vicarious liability - Section 141 of the Negotiable Instruments Act - HELD THAT - In this case the statutory notice was not served on the petitioner since the petitioner was resigned from A1 company on 01.08.1998 and the same was accepted in the board meeting which was held on 08.09.1998. To prove the resignation the petitioner submitted Form 32 dated 11.09.1998 issued by the Registrar of Companies Chennai. Admittedly the cheque was presented for encashment on 03.09.1998 and the statutory notice was issued on 11.09.1998. In the sworn statement it is stated by the respondent that the notice was received by A1 company on 14.09.1998 and as regards notice sent to other accused it was returned for the reason that no such person available in the noticee address which fortifies and confirms that the petitioner was resigned from A1 company on 01.08.1998. It is not in dispute that the petitioner is a Director of A1 company and in the complaint lodged by the respondent except paragraph No.7 nothing is averred against the petitioner. It is seen from the paragraph No.7 of the complaint that except mentioning the magical word that the accused are incharge of the management and affairs of the company there is nothing more - this Court finds that there is no factual averments to show how the petitioner is responsible for the business and conduct of A1 company to invoke provision under Section 141 of the Negotiable Instruments Act. Petition allowed.

Summary

Issues:
- Interpretation of Section 141 of the Negotiable Instruments Act for vicarious liability of directors.
- Validity of quashing proceedings against the petitioner/A3 based on lack of averments in the complaint.

Analysis:
1. The petitioner, A3, was accused in a complaint under Section 138 of the Negotiable Instruments Act. The respondent purchased debentures from a company where A1 stood as Guarantor. A cheque issued for debenture redemption was dishonored, leading to the complaint.

2. The petitioner argued that he resigned from the company before the offense and cited legal precedents like "S.M.S Pharmaceuticals Limited" to support his case for quashing the proceedings. He emphasized the need for specific averments to establish liability under Section 141.

3. The respondent contended that the petitioner, as a Director, cannot evade responsibility, alleging pre-dated resignation to escape prosecution. The respondent highlighted the financial loss suffered and the petitioner's role in the company.

4. The court examined the complaint and noted the absence of specific averments against the petitioner, as required under Section 141. Citing legal precedents, the court emphasized the need for factual averments to establish vicarious liability.

5. Consequently, the court allowed the petition, quashing the proceedings against the petitioner/A3 due to the lack of factual averments establishing his responsibility under Section 141. The decision was based on the legal principle that vicarious liability of directors requires specific allegations in the complaint.

This detailed analysis of the judgment highlights the legal arguments presented by both parties, the application of legal precedents, and the court's reasoning for quashing the proceedings against the petitioner/A3 based on the lack of specific averments to establish vicarious liability under Section 141 of the Negotiable Instruments Act.