2017 (5) TMI 371 - HC - Indian Laws

Liability of one of a Director of a Company under Section 141 of N.I. Act for the dishonour of the cheque issued by the original accused on behalf of the company - Held that - ed. The law so far as the liability of a Director of a Company under Section 141 of the Act is concerned, is no longer res integra. The Supreme Court in the case of National Small Industries Corporation Limited v. Harmeet Singh Paintal and another 2010 (2) TMI 590 - SUPREME COURT OF INDIA vwherein held that in the absence of specific averment as to the role of the respondents and particularly in view of the acceptable materials that at the relevant time they were in no way connected with the affairs of the company, we reject all the contentions raised by learned counsel for the appellants. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases. This application succeeds and is hereby allowed. The proceedings of the Criminal Case pending in the court of the learned Metropolitan Magistrate, Court No.36, Ahmedabad are hereby quashed so far as the applicant is concerned. The case shall now proceed further expeditiously in accordance with law so far as the other co-accused are concerned. Rule is made absolute to the aforesaid extent.

Issues Involved:
1. Quashing of the complaint and consequential proceedings.
2. Quashing of the verification order and summons issued by the Metropolitan Magistrate.
3. Quashing of the Sessions Court order in Criminal Revision Application.
4. Stay of further proceedings pending the petition.

Issue-wise Detailed Analysis:

1. Quashing of the Complaint and Consequential Proceedings:
The applicant, an independent director of the accused company, sought to quash the complaint filed under Section 138 of the Negotiable Instruments Act (N.I. Act). The primary contention was that the applicant was not responsible for the day-to-day affairs of the company and merely being a director does not make one liable under Section 141 of the N.I. Act. The Supreme Court's interpretation in National Small Industries Corporation Limited v. Harmeet Singh Paintal emphasized that specific averments must show how a director was responsible for the company's conduct at the relevant time. The complaint must spell out the role of the director in the alleged offence. The court referred to various precedents, concluding that the applicant could not be held vicariously liable as there were no specific allegations about his involvement in the management of the company.

2. Quashing of the Verification Order and Summons Issued by the Metropolitan Magistrate:
The applicant challenged the order of the Metropolitan Magistrate issuing summons. The court reiterated that for a director to be summoned under Section 138 read with Section 141 of the N.I. Act, there must be specific allegations showing how the director was responsible for the conduct of the company’s business. The mere reproduction of statutory language without specific details is insufficient. The court found that the complaint lacked necessary particulars regarding the applicant’s role and responsibilities, making the summons order unsustainable.

3. Quashing of the Sessions Court Order in Criminal Revision Application:
The applicant also sought to quash the Sessions Court order which upheld the Metropolitan Magistrate’s decision. The court examined the legal standards for vicarious liability under Section 141 of the N.I. Act, emphasizing that only those involved in the company’s day-to-day management can be held liable. The Sessions Court’s order was found to be inconsistent with established legal principles requiring specific allegations against directors. Consequently, the order was quashed.

4. Stay of Further Proceedings Pending the Petition:
Pending the final disposal of the petition, the applicant requested a stay on further proceedings in the criminal case. The court granted this interim relief, acknowledging the potential for irreparable harm and the need to prevent abuse of the judicial process. The stay was justified as the proceedings against the applicant were based on insufficient and unspecific allegations.

Conclusion:
The court allowed the application, quashing the criminal proceedings against the applicant. It emphasized the necessity for specific and clear allegations to establish a director’s liability under Section 141 of the N.I. Act. The case against the applicant was found to lack the required particulars, leading to the quashing of the complaint, verification order, summons, and the Sessions Court order. The proceedings were stayed to prevent misuse of the judicial process, ensuring that only those genuinely responsible for the company’s conduct are prosecuted.

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