2019 (1) TMI 1373 - HC - Indian Laws

Dishonor of Cheque - Vicarious criminal liability under Section 141 NI Act, 1881 - Held that - Under the articles of association of the company accused, the petitioners being the non-executive directors nominated by the investor company have some role to play on the board of directors. It may also be that no meeting of board of directors could be convened without at least one of them being present. But then, there is some distinction between being privy to what were the affairs of the company and being responsible for its day-to-day affairs or conduct of its business. The complaints are conspicuously silent on this score. Rather the complaints would not even acknowledge receipt of the said replies. Same is the position with the affidavits which were filed during the pre-summoning inquiry. The complaints, insofar as they are directed against the petitioners, would, thus, fail even on the averment test - the petitioners concededly being non-executive directors, in absence of any further averments as to their role in the company at the time of commission of the offences, the presumption under Section 141 NI Act cannot be raised against them. Petition allowed.

Summary

Issues:
Petition challenging summoning orders under Section 138 of the Negotiable Instruments Act, 1881 based on vicarious liability under Section 141 NI Act for non-executive directors. Interpretation of role and liability of non-executive directors in company affairs.

Analysis:

1. The petitioners challenged summoning orders under Section 138 NI Act, claiming they were non-executive directors and not involved in day-to-day affairs of the company. They relied on Companies Act documents and agreements showing their limited role and lack of responsibility in business operations. The respondent argued that as directors, they were privy to company transactions and liable under Section 141 NI Act.

2. The Court referred to Supreme Court decisions like SMS Pharmaceuticals Pvt. Ltd. and Jwala Devi Enterprises P. Ltd. to establish principles for vicarious liability under Section 141 NI Act. It emphasized that liability is on those responsible for business conduct at the time of the offense, not merely on directors. The complainant must specify the role of the accused in the complaint.

3. The Court analyzed the distinction between being a director and being responsible for business affairs, citing Pooja Ravinder Devidasani vs. State of Maharashtra. It clarified that non-executive directors are not liable under Section 141 unless actively involved in day-to-day operations. The complainant failed to establish the petitioners' role in the company's affairs at the time of the offense.

4. The Court noted that the complainant received replies from the petitioners stating their lack of involvement in the company's operations. However, the complaints did not address why the petitioners were being targeted. The lack of specific allegations regarding the petitioners' role led to the quashing of the criminal complaint cases against them.

5. Ultimately, the Court allowed the petitions, stating that in the absence of clear averments regarding the petitioners' involvement in the company's affairs at the time of the offenses, the presumption under Section 141 NI Act could not be raised against them. As a result, the proceedings in the criminal complaint cases against the petitioners were quashed.