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2022 (8) TMI 1 - HC - Indian LawsDishonor of Cheque - Funds insufficient - vicarious liability of Directors - grounds urged by the applicants is that they are independent non executive Directors or that there are no averments to satisfy the requirements of Section 141 of NI Act is required to be appreciated during the trial - HELD THAT - The documents on record indicate that the the applicants are independent non executive Directors. In the light of the averments made in the complaint, role of independent Directors, documents on record, petitioners cannot be prosecuted for the offences punishable under Section 138 of NI Act by invoking Section 141 of the said Act. The applicants were independent non executive Directors of accused no.1 company. Considering the facts of this case, in exercise of inherent powers of this Court under Section 482 of Cr.P.C., the proceedings against them are required to be quashed. Learned counsel for the respondent complainant submitted that the trial as against the other accused may be expedited. Application allowed.
Issues Involved:
1. Responsibility of non-executive independent directors in company affairs. 2. Applicability of Section 138 of the Negotiable Instruments Act to non-executive independent directors. 3. Sufficiency of averments in the complaint to implicate non-executive independent directors. 4. Legal provisions and precedents regarding liability of independent directors. Issue-wise Detailed Analysis: 1. Responsibility of Non-Executive Independent Directors in Company Affairs: The applicants contended that they were non-executive independent directors of the accused company and not involved in the day-to-day affairs. They argued that under Section 149(12) of the Companies Act, an independent director or non-executive director is liable only for acts of omission or commission by the company that occurred with their knowledge, consent, or connivance, or where they had not acted diligently. The court acknowledged that the applicants were described as independent non-executive directors in the Corporate Governance Report and Form 32, indicating their non-involvement in daily operations. 2. Applicability of Section 138 of the Negotiable Instruments Act to Non-Executive Independent Directors: The complaint was filed under Section 138 of the NI Act due to the dishonor of a cheque issued by the accused company. The applicants argued that they should not be prosecuted under this section as they were not responsible for the company's daily business activities. The court noted that Section 141 of the NI Act requires that to prosecute a person, they must be in charge of and responsible for the conduct of the company's business at the time of the offense. The court found that the complaint did not attribute any specific overt act to the applicants beyond their designation as directors. 3. Sufficiency of Averments in the Complaint to Implicate Non-Executive Independent Directors: The applicants argued that the complaint lacked specific averments regarding their role in the alleged offense. They relied on precedents such as Pooja Ravinder Devidasani Vs. State of Maharashtra, which held that merely being a director does not make one liable under the NI Act unless they were in charge of and responsible for the conduct of the business. The court agreed, noting the absence of specific allegations against the applicants in the complaint. 4. Legal Provisions and Precedents Regarding Liability of Independent Directors: The court referred to Section 149 of the Companies Act, which outlines the qualifications and responsibilities of independent directors, emphasizing that they are not involved in day-to-day company affairs. The court also cited several precedents, including Chintalapati Srinivasa Raju Vs. Securities and Exchange Board of India, which clarified that non-executive directors are not responsible for the daily conduct of the business. The court concluded that the applicants, being independent non-executive directors, could not be held liable under Section 138 of the NI Act. Conclusion: The court quashed the criminal proceedings against the applicants, recognizing their status as independent non-executive directors and the lack of specific allegations against them in the complaint. The trial against the other accused was ordered to be expedited. Order: (i) Criminal Application No.74 of 2021 is allowed. (ii) Criminal proceedings and the order issuing process in CC.No.3461 of 2013 against the applicants are quashed and set aside. (iii) Trial against the other accused is expedited. (iv) Criminal Application stands disposed of accordingly.
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