2019 (1) TMI 571 - HC - Indian Laws

Dishonor of Cheque - insufficient funds - involvement of the accused/Director of the company in the complaint - vicarious liability u/s 141 of the Negotiable Instruments Act - Held that - The documents relied upon by the petitioners are required to be tested in evidence. The complainant has made prima facie case against the petitioners. Apart from the avermentas made in the complaint, there is evidence to indicate the involvement of the petitioners in the transactions of the accused No.1 Company. In the circumstances, the submissions advanced by the petitioners cannot be accepted. Section 141 is a penal provision creating vicarious liability and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director is In charge of and responsible to the Company for the conduct of the business of the Company without anything more as to the role of the Director. It can be seen that the complainant has made out a case for invoking vicarious liability under Section 141 of the Negotiable Instruments Act and the contentions of the accused can be agitated only at the time of trial. - The decisions relied upon by the learned Counsel for the petitioners can be distinguished on the basis of factual matrix of the present case. Petitions dismissed.

Issues Involved:
1. Invocation of Article 227 of the Constitution of India and Section 482 of the Code of Criminal Procedure, 1973.
2. Issuance of process under Section 138 of the Negotiable Instruments Act.
3. Vicarious liability of Directors under Section 141 of the Negotiable Instruments Act.
4. Validity of resignation and involvement in day-to-day affairs of the company.

Issue-wise Detailed Analysis:

1. Invocation of Article 227 of the Constitution of India and Section 482 of the Code of Criminal Procedure, 1973:
The petitioners invoked Article 227 of the Constitution and inherent powers under Section 482 of the CrPC to challenge the order issuing process and the proceedings initiated for the offence under Section 138 of the Negotiable Instruments Act. The court analyzed whether the use of these provisions was justified in the context of the complaints and the issuance of process.

2. Issuance of Process under Section 138 of the Negotiable Instruments Act:
The complaints were filed for dishonor of cheques issued by the accused company. The cheques, when presented for realization, were dishonored due to insufficient funds. Statutory notices were issued to the accused, but the payments were not made. The trial court issued process under Section 138 of the Negotiable Instruments Act. The petitioners contended that the process was issued mechanically without proper application of mind by the Magistrate.

3. Vicarious Liability of Directors under Section 141 of the Negotiable Instruments Act:
The petitioners argued that they were not in charge of or responsible for the day-to-day affairs of the company and thus could not be held vicariously liable under Section 141 of the Negotiable Instruments Act. The court examined the averments in the complaints, which stated that the accused directors were in charge of and responsible for the conduct of day-to-day affairs of the company. The court found that the complaints complied with the legal requirements to invoke Section 141, establishing a prima facie case against the petitioners.

4. Validity of Resignation and Involvement in Day-to-Day Affairs of the Company:
Petitioners claimed they had resigned from the directorship before the cheques were issued and thus should not be held liable. The court scrutinized the evidence, including Form-32 and other documents, and found inconsistencies in the dates of resignation provided by the petitioners. The court noted that the resignation and involvement in the company's affairs were factual issues that needed to be proved during the trial. The court emphasized that the defense of resignation could not be considered at this preliminary stage and must be tested during the trial.

Conclusion:
The court concluded that the petitions lacked merit and dismissed them. The court held that the complaints contained sufficient averments to invoke vicarious liability under Section 141 of the Negotiable Instruments Act and that the issues raised by the petitioners regarding their resignation and involvement in the company's affairs were matters to be addressed during the trial. The trial court's issuance of process was upheld, and the proceedings were not quashed.

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