2018 (9) TMI 2065 - HC - Indian Laws

Dishonor of Cheque - insufficiency of funds - allegations against the petitioners that they are responsible for the day to day affairs of the company or not - signatories of the cheque or not - HELD THAT - In order to prove that the petitioners are not in charge of day to day affairs he submits that the petitioners are independent directors and hence they cannot be assumed as being responsible for the conduct of business by A1 company. In order to draw support to the contention that the petitioners are only independent directors and did not have any role to play in the day to day affairs of the company the annual reports pertaining to the years 2009-2010. 2010-2011 and 2011-2012 were filed which show that the petitioners are directors and the category is non-executive independent. The contention that the question whether the petitioners are independent directors and whether they are not in charge of day to day affairs can be left to be decided after trial is not in the spirit of the law which directs quash of proceedings when the contents of the complaint coupled with the unimpeachable material produced by the petitioners would not make out a case against the petitioners. This Court opines that continuation of further proceedings against the petitioners would only result in abuse of process of law. Petition allowed.

Summary

Issues:
Quash of criminal proceedings against petitioners based on their role as directors in a company under Section 138 of the Negotiable Instruments Act.

Analysis:
The judgment revolves around the quashing of criminal proceedings against the petitioners, who are directors of a company, in connection with a complaint filed under Section 138 of the Negotiable Instruments Act. The complainant, a banking company, had sanctioned a short-term loan to the company, and when the cheque issued in discharge of the liability was dishonored, the complainant initiated legal action. The petitioners sought quash of proceedings on the grounds that they were not involved in day-to-day affairs or signatories of the cheque. The key argument was that the petitioners, as directors, were not responsible for the alleged offenses.

The counsel for the petitioners contended that the law requires a specific averment in the complaint that the accused directors were in charge of and responsible for the conduct of the company's business at the time of the offense. They relied on legal precedents to support the argument that mere averments of being in charge of day-to-day affairs were insufficient to prosecute the directors. The counsel emphasized the need for unimpeachable evidence to prove the directors' lack of involvement in the company's operations.

The court delved into the definition of an independent director under the Companies Act to assess the petitioners' roles. It was highlighted that the petitioners were categorized as non-executive independent directors, indicating their limited involvement in the day-to-day affairs of the company. The court emphasized that the complaint, coupled with the evidence presented, did not establish a case against the petitioners and continuing the proceedings would amount to an abuse of the legal process.

In conclusion, the court allowed the criminal petitions, quashing the proceedings against the petitioners. The judgment emphasized the importance of specific averments in complaints to prosecute directors under Section 138 of the Negotiable Instruments Act. It highlighted the need for substantial evidence to establish the directors' responsibilities and involvement in the company's affairs, ultimately leading to the decision to quash the proceedings against the petitioners.