2016 (9) TMI 965 - HC - Indian Laws

Complaint under Section 138 read with Section 141 of the Negotiable Instruments Act - petitioner ceased to be a director of the company - Held that - The petitioner had ceased to be a director of the accused company on November 12, 2009, which fact is apparent from Form 32 submitted to the Registrar of Companies, the fact that he was a director of the company when the negotiations took place would be irrelevant.

Summary

Issues:
Quashing of criminal complaint under Section 138 of the Negotiable Instruments Act and summoning orders dated March 01, 2011 and May 14, 2013.

Analysis:
1. The petitioner sought the quashing of criminal complaints and summoning orders under Section 138 of the Negotiable Instruments Act. The dispute arose from an MOU and subsequent agreements between the accused company and the complainant company for land development. The complainant alleged dishonor of post-dated cheques handed over as security, leading to legal action.

2. The petitioner contended that he ceased to be a director of the company before the alleged offenses occurred, as evidenced by Form No.32 submitted to the Registrar of Companies. He argued that mere participation in transactions does not establish liability under Section 141 of the Act, citing relevant legal precedents.

3. On the other hand, the complainant argued that the petitioner's involvement in negotiations and transactions made him vicariously liable under Section 141. They relied on legal interpretations stating that liability can extend to those involved in the conduct of the company's business, even if not directly responsible for the specific offense.

4. The court considered precedents emphasizing the necessity of specific averments in complaints to establish liability under Section 141. It was clarified that being a director alone does not automatically imply liability; rather, active involvement in business conduct at the relevant time is crucial for vicarious liability.

5. Referring to a Supreme Court judgment, the court highlighted that a person transacting with a company can presume the directors are in charge of its affairs. However, the burden lies on the accused directors to prove any restrictions on their powers or lack of involvement in the offense at the trial stage.

6. Ultimately, the court found merit in the petitioner's argument regarding his cessation as a director before the alleged offenses. Considering the legal principles and lack of specific allegations against the petitioner's role, the court allowed the petitions, quashing the criminal complaints and summoning orders against the petitioner.

7. The judgment provides a detailed analysis of the legal requirements under Section 141 of the Negotiable Instruments Act, emphasizing the need for specific averments to establish vicarious liability. It underscores the importance of active involvement in the conduct of a company's business for directors to be held accountable under the Act.