2020 (12) TMI 999 - HC - Indian Laws

Dishonor of Cheque - accused not paid the cheque amounts within 15 days from the date of receipt of the notice and thereby, committed the offence under Section 138 r/w 141, 142 of the Negotiable Instruments Act, 1881 - petitioner submitted that the petitioner is A3, since being a Director of A1 company and wife of A2, she is roped in this case as accused and she is not incharge of the management and affairs of A1 company - HELD THAT - It is not in dispute that the petitioner/A3 is the Director of A1 company. In order to discharge the liability, the said two cheques were issued to the respondent, which were returned in the Bank viz., HSBC Bank, Rajaji Salai, Chennai and the same were returned as 'Payment Stopped by Drawer' - On an overall reading of the complaint, it is seen from the complaint that except the bald averments that the the petitioner/A3 was in charge of and responsible to A1 company at the relevant point of time, nothing has been stated as to what part was played and how she was responsible regarding the issuance of cheque. This Court finds that there is no factual averments to show how the petitioner is responsible for the business and conduct of A1 company to invoke provision under Section 141 of the Negotiable Instruments Act. Admittedly, the petitioner is not a signatory to the cheque in issue. Petition allowed - decided in favor of petitioner.

Summary

Issues:
Petitioner seeking quashing of trial under Sections 138 r/w 141 and 142 of the Negotiable Instruments Act, 1881 based on lack of specific allegations against her vicarious liability. Respondent arguing for continuation of proceedings citing petitioner's role as Director in the company and issuance of dishonored cheques. Interpretation of Section 141 of the Negotiable Instruments Act and the necessity of specific averments for vicarious liability.

Analysis:

Issue 1: Quashing of Trial
The petitioner, A3, sought to quash the trial under Sections 138 r/w 141 and 142 of the Negotiable Instruments Act, 1881, contending lack of specific allegations against her for vicarious liability. The petitioner argued that being a Director of A1 company and not having a specific role as alleged by the respondent, the Magistrate should not have taken cognizance of the complaint against her. The petitioner emphasized the need for specific allegations to make a Director vicariously liable, as per legal precedents. The petitioner's counsel highlighted the essential requirement of averments under Section 141 of the Act and cited the case of "S.M.S Pharmaceuticals Limited" to support the argument that vicarious liability must be pleaded and proved, not inferred.

Issue 2: Respondent's Arguments
The respondent opposed the quashing of proceedings, asserting that the petitioner, as a Director of A1 company, cannot deny involvement in the affairs of the company. The respondent contended that the petitioner, along with A2, fraudulently issued 'Stop Payment' instructions to the bank, leading to the dishonor of cheques, which constitutes an offense under Section 138 of the Act. The respondent relied on legal principles to argue that specific averments indicating the Director's responsibility for the company's conduct are sufficient to maintain a complaint under Section 138. The respondent emphasized that the petitioner and A2 were in charge and responsible for the business of A1 company at the time of the offense, justifying the Magistrate's cognizance of the complaint.

Issue 3: Interpretation of Section 141
The Court analyzed the complaint and legal precedents, including the guidelines laid down by the Supreme Court in cases like "S.M.S Pharmaceuticals" and "K.P.G. Nair v. Jindal Menthol India Ltd." The Court noted that the complaint lacked factual averments demonstrating the petitioner's responsibility for the business and conduct of A1 company to invoke Section 141 of the Act. It was observed that the petitioner was not a signatory to the dishonored cheque in question. Consequently, the Court allowed the Criminal Original Petition, quashing the proceedings against the petitioner alone, emphasizing the absence of necessary averments for vicarious liability.

Conclusion
The Court allowed the petition, quashing the proceedings against the petitioner/A3, directing the trial court to complete the trial within three months once normal court functioning resumes. The judgment highlighted the importance of specific averments to establish vicarious liability under Section 141 of the Negotiable Instruments Act, emphasizing the need for factual allegations to support criminal liability. The Legal Aid Counsel for the respondent was appreciated for their effective arguments in the case.