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2022 (8) TMI 55 - SC - Indian LawsDishonor of Cheque - vicarious liability - rebuttal of presumption - non-Executive Independent Directors - In the High Court, it was contended that the Judicial Magistrate, 2nd Court, Suri, dealt with the application under Section 205 of the Cr.P.C. without considering whether any useful purpose would be served by requiring the personal attendance of the Accused or whether the progress of the trial was likely to be hampered on account of their absence - HELD THAT - While it is true that inherent jurisdiction under Section 482 should be exercised sparingly, carefully and with caution and only when such exercise is justified by the tests specially laid down in the Section, the Court is duty bound to exercise its jurisdiction under Section 482 of the Cr.P.C. when the exercise of such power is justified by the tests laid down in the said Section. Jurisdiction under Section 482 of the Cr.P.C. must be exercised if the interest of justice so requires. The High Court rightly held that when a complaint was filed against the Director of a company, a specific averment that such person was in charge of and responsible for the conduct of business of the company was an essential requirement of Section 141 of the NI Act. The High Court also rightly held that merely being a Director of the company is not sufficient to make the person liable under Section 141 of the NI Act. The requirement of Section 141 of the NI Act was that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company. This has to be averred as a fact - The High Court also rightly held that the Managing Director or Joint Managing Director would admittedly be in charge of the company and responsible to the company for the conduct of its business by virtue of the office they hold as Managing Director or Joint Manging Director. These persons are in charge of and responsible for the conduct of the business of the company and they get covered under Section 141 of the NI Act. A signatory of a cheque is clearly liable under Section 138/141 of the NI Act. There can be no doubt that in deciding a Criminal Revisional Application under Section 482 of the Cr.P.C. for quashing a proceeding under Section 138/141 of the NI Act, the laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions resulting in enactment of the said Sections has to be borne in mind. The provisions of Section 138/141 of the NI Act create a statutory presumption of dishonesty on the part of the signatory of the cheque, and when the cheque is issued on behalf of a company, also those persons in charge of or responsible for the company or the business of the company. Every person connected with the company does not fall within the ambit of Section 141 of the NI Act - the High Court correctly observed that three categories of persons were covered by Section 141 of the NI Act the company who committed the offence as alleged; everyone who was in-charge of or was responsible for the business of the company and any other person who was a Director or a Manager or a Secretary or Officer of the Company with whose connivance or due to whose neglect the company had committed the offence. A Director of a company who was not in charge or responsible for the conduct of the business of the company at the relevant time, will not be liable under those provisions. - What the High Court overlooked was, the contention of these Appellants that they were non-Executive Independent Directors of the Accused Company, based on unimpeachable materials on record. The High Court observed that in the petition it had specifically been averred that all the accused persons were responsible and liable for the whole business management of the Accused Company, and took the view that the averments in the complaint were sufficient to meet the requirements of Section 141 of the NI Act. The judgment and order of the High Court is set aside - appeal allowed.
Issues Involved:
1. Quashing of proceedings under Section 138/141 of the Negotiable Instruments Act, 1881. 2. Application of Section 205 and Section 305 of the Code of Criminal Procedure, 1973. 3. Vicarious liability of Directors under Section 141 of the NI Act. 4. Judicial discretion under Section 482 of the Cr.P.C. 5. Impact of Insolvency and Bankruptcy Code proceedings on the criminal case. Detailed Analysis: 1. Quashing of Proceedings under Section 138/141 of the Negotiable Instruments Act, 1881: The appellants sought to quash the proceedings in Case No. AC/121/2017 under Section 138/141 of the NI Act. The complaint by PSQ alleged that the appellants, as directors of the accused company, were responsible for the day-to-day business affairs. However, the Supreme Court held that the mere statement that the appellants were in charge of and responsible for the conduct of the business was not sufficient without specific particulars. The Court emphasized that liability under Section 141 arises from being in charge of and responsible for the conduct of the business at the relevant time, not merely holding a designation. 2. Application of Section 205 and Section 305 of the Code of Criminal Procedure, 1973: The appellants filed petitions under Sections 205 and 305 of the Cr.P.C. to dispense with their personal appearance. Section 205 allows a Magistrate to dispense with personal attendance if deemed unnecessary, while Section 305 deals with representation of a corporation in criminal proceedings. The Judicial Magistrate, 2nd Court, Suri, Birbhum, rejected these petitions, directing the appellants to appear in person. The Supreme Court found that the High Court erred in upholding this decision without considering whether personal attendance was necessary. 3. Vicarious Liability of Directors under Section 141 of the NI Act: The Supreme Court reiterated that vicarious liability under Section 141 must be strictly construed. For directors to be liable, there must be specific averments indicating their role in the conduct of the business at the time of the offence. The Court referred to precedents like S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and K.K. Ahuja v. V.K. Vora, emphasizing that mere designation as a director does not suffice for criminal liability. The appellants, being non-executive independent directors, were not involved in the day-to-day affairs and thus not liable under Section 141. 4. Judicial Discretion under Section 482 of the Cr.P.C.: Section 482 of the Cr.P.C. preserves the inherent power of the High Court to prevent abuse of process and secure the ends of justice. The Supreme Court noted that this power must be exercised judiciously and sparingly. The High Court failed to appreciate that the appellants were non-executive directors with no role in the issuance or dishonour of the cheque. The Supreme Court held that the High Court should have quashed the proceedings against the appellants to prevent misuse of the judicial process. 5. Impact of Insolvency and Bankruptcy Code Proceedings on the Criminal Case: The proceedings under the IBC led to the appointment of an Interim Resolution Professional (IRP) for the accused company, suspending the appellants' roles. PSQ had filed claims under the IBC, which were part of an approved resolution plan. The Supreme Court noted that the management of the accused company had changed hands when the statutory notice of dishonour was sent, further supporting the appellants' non-liability. Conclusion: The Supreme Court allowed the appeal, quashing the criminal proceedings against the appellants under Section 138/141 of the NI Act. The Court emphasized the need for specific averments in the complaint to hold directors liable and criticized the High Court for adopting a hyper-technical approach. The proceedings may continue against other accused, particularly the managing director and the signatory of the cheque.
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