2022 (8) TMI 816 - HC - Indian Laws

Dishonor of Cheque - vicarious liability of Director u/s 141 of NI Act - petitioner had knowledge about the issuance of impugned cheques at the time of presentation or not? - case of petitioner is that at the time of borrowal of loan and at the time of issuance of cheques, the petitioner was neither Managing Director nor signatory of the impugned cheques - HELD THAT - Admittedly, at the time of borrowal of loan on behalf of the first accused company, the post dated cheques were issued in favour of the respondents signed by the authorized signatory of the first accused company namely, the Managing Director of the first accused company and father of the petitioner herein. The date of borrowal of loan were on 13.07.2019 and 27.07.2019. However, the Managing Director of the first accused company cum authorized signatory of the first accused company, unfortunately died on 03.09.2019. Thereafter on 17.09.2019, the petitioner was inducted as one of the Director of the first accused company. Therefore, at the time of issuance of cheques, the petitioner was neither a Director of the first accused company nor authorized signatory of the cheques. Therefore, simply because a person is a Director of a company, does not make him liable under the Negotiable Instruments Act. Every person connected with the company will not fall into the ambit of the provision. Time and again, the Hon'ble Supreme Court of India and this Court repeatedly held that only those persons who were in charge of and were responsible for the conduct of the business of the company at the time of commission of an offence will be liable for criminal action. A Director, who was not in charge of and was not responsible for the conduct of the business of the company at the relevant point of time, will not be liable for an offence under Section 141 of the Negotiable Instruments Act. The provisions under Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of commission of the offence, were in charge of and were responsible for the conduct of the business of the company. Further, the primary responsibility is on the complainant to make specific averments as are required under the provisions in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction - Admittedly in the case of hand, the petitioner was inducted as one of the Director of the first accused company, only after the demise of his father who acted as Managing Director of the first accused company as well as authorized signatory of the first accused company. Therefore, the petitioner cannot be liable to be punished for offences under Sections 138 and 141 of the Negotiable Instruments Act. Hence, if the impugned complaint are allowed to proceed against the petitioner, it would result in gross injustice and tantamount to an abuse of process of Court. Petition allowed.

Summary

Issues:
1. Whether the petitioner is liable under Section 141 of the Negotiable Instruments Act?
2. Whether the petitioner had knowledge about the issuance of impugned cheques at the time of presentation?

Analysis:
1. The petitioner, as A3, was accused in complaints under Section 138 of the Negotiable Instruments Act. The complainants alleged that the petitioner, as a Director, was responsible for the company's conduct during the offence. However, the petitioner's counsel argued that he was not a Director or signatory at the time of the offence. The court emphasized that only those in charge of the company's business during the offence are liable under Section 141. The complaint lacked specific averments regarding the petitioner's role, leading to the quashing of proceedings against him.

2. The court noted that the petitioner became a Director after his father's death, who was the Managing Director and signatory of the cheques. The petitioner denied knowledge of the transactions and cheques issuance. The absence of a rejoinder from the respondents regarding the petitioner's knowledge further weakened the case. Section 141 imposes liability on those in charge at the time of the offence, requiring knowledge of cheque issuance. As the petitioner was not involved during the offence, the court quashed the proceedings against him.

3. The court cited precedents emphasizing that criminal liability under Section 141 is specific to those responsible for the company's affairs during the offence. The complainant must make clear averments to establish vicarious liability. In this case, the petitioner's induction as a Director post-offence absolved him of liability. All Directors cannot be presumed to have knowledge of transactions. As the petitioner was not in charge during the offence, the court ruled in his favor, quashing the complaints against him.

4. In conclusion, the court quashed the proceedings against the petitioner, A3, in the complaints under Section 138 of the Negotiable Instruments Act. The Trial Court was directed to proceed with the trial against other accused promptly. The judgment highlighted the importance of specific averments and the timing of responsibility in determining liability under Section 141, protecting individuals from unjust prosecution and abuse of legal processes.