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2018 (12) TMI 1986 - HC - Indian LawsDishonour of Cheque - principles of vicarious liability - whether necessary allegations have been made in the complaint against the petitioners by satisfying the requirements under Section 141 of the Negotiable Instruments Act? - HELD THAT - From the judgments in NATIONAL SMALL INDUSTRIES CORPN. LTD. VERSUS HARMEET SINGH PAINTAL 2010 (2) TMI 590 - SUPREME COURT , POOJA RAVINDER DEVIDASANI VERSUS STATE OF MAHARASHTRA ANOTHER 2014 (12) TMI 1070 - SUPREME COURT and ASHOKE MAL BAFNA VERSUS M/S UPPER INDIA STEEL MFG. ENGG. CO. LTD. 2017 (3) TMI 907 - SUPREME COURT , it is very clear that it is not enough if the words used under Section 141 of the Negotiable Instruments Act, is merely extracted. In order to make a Director of a Company is liable for the offence committed by the Company under Section 141 of the Negotiable Instruments Act, there must be a specific averment against the Director to show as to how and in what manner the Director was responsible for the conduct of the business of the Company. This composition has been reiterated by the Hon'ble Supreme Court consistently. This Court is not in agreement with the submission made by the learned counsel for the respondent. If it is enough to mechanically repeat the requirement under Section 141 1 of the Negotiable Instruments Act, any number of Directors can be made as an accused in a complaint filed under Section 138 of the Negotiable Instruments Act. This will lead to a situation where the Directors who have nothing to do with the day-to-day affairs of the Company, Nominee Directors etc., being made to face a criminal complaint just because there is a repetition of the words found under Section 141 1 of the Negotiable Instruments Act. This may lead to an abuse of process of Court and any person who is shown as a Director will be made to undergo the ordeal of trial. The allegations made in the complaint does not satisfy the requirements of Section 141 of the Negotiable Instruments Act, and the requirements reiterated by the Hon'ble Supreme Court, insofar as these petitioners are concerned, and therefore this Court has to necessarily interfere with the proceedings in exercise of its jurisdiction under Section 482 of Cr.P.C. - Petition allowed.
Issues Involved:
1. Whether the criminal complaints against the petitioners satisfy the requirements under Section 141 of the Negotiable Instruments Act. 2. Whether the petitioners, as Investor Directors/Non-Executive Directors, are liable for the company's default or failure. Issue-wise Detailed Analysis: 1. Satisfaction of Requirements under Section 141 of the Negotiable Instruments Act: The primary issue examined was whether the allegations in the complaint met the requirements under Section 141 of the Negotiable Instruments Act. The petitioners argued that they were only Investor Directors/Non-Executive Directors and not responsible for the day-to-day management of the company. They contended that the complaint lacked specific allegations against them, as mandated by Section 141. The court scrutinized the complaint's allegations, which stated that the accused were responsible for the management and day-to-day affairs of the company. However, the court emphasized that merely repeating the statutory language of Section 141 is insufficient. The complaint must specifically detail how the directors were responsible for the company's conduct. The court referred to several precedents, including: - National Small Industries Corporation Limited vs. Harmit Singh Paintal (2010 3 SCC 330): This case clarified that a complaint must specifically aver that the accused was in charge of and responsible for the conduct of the company's business at the time of the offense. - Pooja Ravinder Devidasani vs. State of Maharashtra (2014 16 SCC 1): It was established that non-executive directors, who do not manage day-to-day affairs, cannot be held liable under Section 141. - Ashok Mal Bafna vs. M/s. Upper India Steel Mfg. & Engg. Co. Ltd. (2017 SCC OnLine SC 705): This case reiterated the need for specific averments in the complaint regarding the director's role in the company's business. The court concluded that the complaint did not meet the requirements under Section 141, as it lacked specific allegations detailing the petitioners' responsibility for the company's conduct. Therefore, the court decided to quash the proceedings against the petitioners. 2. Liability of Investor Directors/Non-Executive Directors: The petitioners argued that as Investor Directors/Non-Executive Directors, they were not in charge of the company's day-to-day management and thus not liable for its defaults. They cited the company's Articles of Association, which stated that Investor Directors are not responsible for daily management. The respondent countered that there were documents showing the petitioners' involvement in signing financial statements and being listed as Nominee Directors. They argued that these facts created a dispute that could not be resolved under Section 482 of Cr.P.C. and required a trial. The court, having already found that the complaint did not meet the requirements under Section 141, did not delve deeply into this issue. The court noted that addressing this argument was unnecessary given the resolution of the first issue. Conclusion: The court quashed the proceedings against the petitioners in C.C. Nos. 6573 and 6574 of 2017, pending before the XIII Metropolitan Magistrate Court, Egmore. The court directed the lower court to complete the proceedings against the other accused within three months. Consequently, the connected miscellaneous petitions were also closed.
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