2020 (12) TMI 1077 - HC - Indian Laws

Dishonor of Cheque - insufficiency of funds - Sections 138 read with 142 of the Negotiable Instruments Act, 1881 - vicarious liability on the part of the accused - legally enforceable debt or not - HELD THAT - It is not in dispute that the petitioner/A3 was a Director of A1 company and in the complaint lodged by the respondent except mentioning the magical word that the accused are incharge of the management and affairs of the company, there is nothing more. 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 - Further, the petitioner/A3 is no more Director of the A1 company on the date of cheque i.e., on 07.09.2012, since she resigned from the company on 10.10.2011. In support of the contention, the petitioner produced Form 32 to that effect, which is at page No.6 of the typed set. The petitioner is a lady. Petition allowed.

Summary

Issues:
Quashing of proceedings under Sections 138 r/w 142 of the Negotiable Instruments Act, 1881 based on vicarious liability under Section 141.

Analysis:

Issue 1: Quashing of Proceedings
The petitioner sought to quash the proceedings under Sections 138 r/w 142 of the Negotiable Instruments Act, 1881, pending before the Judicial Magistrate Court. The respondent alleged a due amount of ?93,204/- and ?8,21,690/- against the accused, leading to the issuance of cheques. The complaint was based on the dishonoring of these cheques due to insufficient funds.

Issue 2: Vicarious Liability under Section 141
The core contention revolved around the vicarious liability of the petitioner/A3 under Section 141 of the Negotiable Instruments Act. The petitioner argued that she was not in charge of the affairs of the company at the time of the offense. The respondent countered, asserting that the petitioner, being a Director, cannot absolve herself from the case merely by resigning from the company.

Analysis of Judgment:
The Court deliberated on the legal principles established in previous cases like "S.M.S Pharmaceuticals Limited" and reiterated the necessity of specific averments to establish vicarious liability under Section 141. It emphasized that mere general allegations without specific details are insufficient to invoke Section 141. The Court highlighted the importance of factual averments demonstrating the accused's responsibility for the company's conduct at the time of the offense.

The Court scrutinized the petitioner's resignation date from the company and the relevance of Form 32 in establishing her non-involvement in the company's affairs at the time of the offense. It was noted that the petitioner, being a lady and a former Director, had fulfilled the legal requirements to distance herself from the company's operations, thereby escaping vicarious liability under Section 141.

In light of the legal precedents and the factual circumstances presented, the Court concluded that the petitioner/A3's resignation and non-involvement in the company's affairs at the time of the offense absolved her from vicarious liability. Consequently, the Court allowed the Criminal Original Petitions, quashing the proceedings against the petitioner/A3 alone, and closed the connected Criminal Miscellaneous Petitions.