2022 (1) TMI 192 - HC - Indian Laws

Dishonor of Cheque - Vicarious liability on the Director of the company - involvement of the director (respondent No. 2) in the affars of the company or not - cheque signed by the said director or not - whether the allegation was made merely on account of the position held by the director in the accused company? - HELD THAT - The law on summoning of an accused for the offence punishable under Section 138 N.I. Act has been enunciated by the Supreme Court time and again. It has been propounded that before summoning an accused under Section 138 N.I. Act, the Magistrate shall examine the nature of the allegations made in the complaint and the evidence, both oral and documentary, in support thereof, and then proceed further with the proper application of mind to the legal principle of the issue - It is also well settled that at the time of issuing of the process, the Magistrate is required to see only the allegations in the complaint and only where the allegations in the complaint do not constitute an offence against a person, the complaint is liable to be dismissed. For making a Director of a company liable for the offences committed by the company under Section 141 of the N.I. Act, there must be an averment in the complaint that he was in-charge of and responsible to the accused company for running of its day-to-day business at the time of commission of the alleged offence - the N.I. Act being a penal statute should receive strict construction and thus, averments in the complaint which satisfy the requirements of Section 141 N.I. Act are imperative. The fact that respondent No. 2 is a Director of the accused company is also not disputed. The petitioner has also placed on record balance sheets of the accused company for the relevant years, which indicate that the same were signed by respondent No. 2 in the capacity of Director. In this backdrop, what role, if any, was played by respondent No. 2 at the time when the offence was committed shall be a matter of trial and may be discerned by the concerned Court once both parties have led evidence - In the opinion of this Court, no ground for quashing of the summoning order qua respondent No. 2 is made out, as the case is at nascent stage. Considering the facts thereof, requirements of Section 141 N.I. Act are prima facie satisfied. The present petition is allowed and the impugned order is set aside.

Summary

Issues:
1. Challenge to order setting aside summoning by Revisional Court.
2. Liability of a Director under Section 138 N.I. Act.
3. Averments in the complaint against a Director for summoning.

Analysis:
1. The petitioner challenged the order setting aside summoning by the Revisional Court, arguing that respondent No. 2, a Director of the accused company, was rightly summoned by the Trial Court. The complaint alleged that respondent No. 2 was responsible for the day-to-day affairs of the company, supported by balance sheets signed by her. The Revisional Court contended that specific averments were lacking regarding respondent No. 2's role in the company's financial affairs and the transaction in question.

2. The Court referred to legal precedents emphasizing the requirement for a Director to be in charge and responsible for the company's business to be held liable under Section 138 N.I. Act. It highlighted that the complaint must contain material enabling the Magistrate to issue process. The judgment cited cases like S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Gunmala Sales Private Limited v. Anu Mehta to establish the necessity of averments linking the Director to the company's affairs at the time of the alleged offence.

3. The Court analyzed the averments in the complaint against respondent No. 2, noting that basic averments indicating her responsibility for the company's day-to-day affairs were present. It observed that no material had been provided to refute her involvement, and her status as a Director was undisputed. The Court concluded that the case was at a nascent stage, and the requirements of Section 141 N.I. Act were prima facie satisfied, warranting trial to determine the extent of respondent No. 2's role in the company.

4. Ultimately, the Court found no grounds to quash the summoning order against respondent No. 2, upholding the Trial Court's decision. The impugned order by the Revisional Court was deemed flawed, and the Trial Court was directed to proceed against respondent No. 2 in accordance with the law. The judgment emphasized the importance of strict construction of the N.I. Act and the need for averments satisfying the statutory requirements for holding a Director liable under the Act.