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2019 (1) TMI 1375 - HC - Indian LawsDishonor of Cheque - Vicarious liability u/s 141 of NI Act - prosecution of the parties - Held that - This court considered more or less similar issues in the context of a batch of similar prosecutions for offence under Section 138 of the Negotiable Instruments Act, 1881 in decision reported as Jwala Devi Enterprises Pvt. Ltd. vs. Fadi El Jaouni, 2018 (7) TMI 1568 - DELHI HIGH COURT . While construing the penal clause under Section 138 of the N.I.Act, this court observed that The dishonor of a cheque which had been issued by the person (who is sought to be prosecuted) in favour of the complainant must be followed by a notice of demand within the stipulated period. It is the non-payment of the amount of the cheque within the statutory period after service of the notice of demand which constitutes the offence that is punishable under the aforementioned provision of law. Going by the averments in the complaint at hand, it not being a case of the complainant that the petitioners were the signatories to the cheques in question, the order summoning them as accused merely on the allegations that they were the directors in the company accused at the relevant point of time is bad in law - petition allowed.
Issues:
1. Quashing of criminal proceedings under Section 482 of Cr.P.C. 2. Interpretation of Section 141 of the Negotiable Instruments Act, 1881. 3. Vicarious liability of directors in a company under criminal law. Analysis: Issue 1: Quashing of Criminal Proceedings The petitioners sought to quash criminal proceedings initiated under Section 138 of the Negotiable Instruments Act, 1881. The petitioners, not being signatories to the cheques in question, challenged their vicarious liability as directors of the company accused. The complainant alleged that the petitioners, as directors, were responsible for the conduct of the company's business, despite their denial of involvement in the transactions. The High Court considered previous challenges and fresh grounds raised by the petitioners, ultimately allowing the petition and quashing the proceedings against them. Issue 2: Interpretation of Section 141 of the Negotiable Instruments Act The court analyzed Section 141 of the Negotiable Instruments Act, 1881, focusing on the liability of individuals in charge of a company's business. Referring to established legal principles, the court clarified that mere directorship does not automatically imply liability under Section 141. It emphasized the need for specific averments in the complaint regarding the individual's role in the company at the time of the offense. The court highlighted that the person summoned under Section 141 could challenge the process by providing substantial evidence to prove lack of involvement in the company's affairs at the time of the offense. Issue 3: Vicarious Liability of Directors The judgment delved into the concept of vicarious liability of directors in a company under criminal law. It distinguished between the roles of signatories to cheques and directors in determining liability under Section 141. The court emphasized that being a director alone does not establish liability and that specific allegations regarding the individual's role in the company at the time of the offense are essential. Drawing on legal precedents, the court concluded that the petitioners' summoning as accused based solely on their directorial positions, without evidence of their involvement in the offense, was legally untenable. In conclusion, the High Court quashed the proceedings against the petitioners, highlighting the necessity of specific averments and substantial evidence to establish liability under Section 141 of the Negotiable Instruments Act, 1881. The judgment reiterates the importance of individual roles in a company's business when determining vicarious liability in cases of criminal prosecution under the Act.
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