2019 (5) TMI 569 - HC - Indian Laws

Dishonor of Cheque - section 138 of NI Act - whether a Director of the Company can challenge issuance of notice at the threshold or it would be available to him/her at the time of his/her defence? - HELD THAT - A perusal of the complaint which is connected to the petition would purport that the complaint is completely silent except it has described the names of the accused and the complainant. Therefore, prima facie, it appears that except the description in cryptic manner, nothing is averred in the complaint under Section 138 of the Act, 1881. In the complaint, only the names of the Directors are shown and except that nothing has been averred. Therefore, in what capacity the Director could be held responsible is completely vague . Petition dismissed.

Summary

Issues:
Challenge to the order setting aside the notice under Section 138 of the Negotiable Instruments Act, 1881 based on the involvement of a Director in the issuance of a bounced cheque.

Analysis:
The petition challenges the order setting aside the notice under Section 138 of the Negotiable Instruments Act, 1881 issued to a Director of a Company regarding a bounced cheque. The complaint was filed against the Company and its Directors, alleging that a cheque issued by the Company was dishonored. The Revisional Court set aside the notice issued to the Director, who claimed no involvement in the issuance of the cheque. The petitioner argued that individual notice to Directors is not necessary as notice to the Company suffices, citing the Supreme Court's decision in Krishna Texport and Capital Markets Limited Vs. Ila A. Agrawal. The State, opposing the petition, relied on Ashoke Mal Bafna Vs. Upper India Steel Manufacturing and Engineering Company Limited, stating that in the absence of averments against the Director in the complaint, prosecution cannot proceed.

The primary issue in the petition is whether a Director can challenge the issuance of notice under Section 138 at the outset or only during the defense stage. The Court observed that the complaint lacked essential averments against the Director as required by the Supreme Court's decision in Gunmala Sales Private Limited Vs. Anu Mehta, emphasizing the need to establish the Director's involvement in the Company's business at the time of the offense. The Court noted that the complaint only listed the names of the accused Directors without specifying their roles, rendering the basis for holding the Director responsible vague and inadequate under legal standards.

The Court further referred to recent Supreme Court judgments, including Ashoke Mal Bafna Vs. Upper India Steel Manufacturing and Engineering Company Limited, reinforcing the necessity of specific averments against a Director to establish liability under Section 141 of the Act. The Court highlighted that summoning a Director requires detailed examination of allegations and evidence to demonstrate the Director's responsibility in the Company's conduct. In this case, the Court found the complaint lacking in substantive details regarding the Director's involvement, failing to meet the legal requirements set by previous Supreme Court decisions.

Ultimately, the Court dismissed the petition, concluding that the complaint did not sufficiently establish the Director's liability as mandated by the law. The judgment underscores the importance of specific averments against Directors in complaints related to bounced cheques under the Negotiable Instruments Act, emphasizing the need for clear and detailed allegations to hold Directors accountable for Company offenses.