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2023 (9) TMI 1359 - HC - Indian LawsDishonour of Cheque - vicarious liability of the director - liability on non-executive directors - Section 141 of the Negotiable Instruments Act - HELD THAT - Where a non-executive director is sought to be made as an accused in the criminal complaint, there must be necessary averments to show as to how and in what manner they were in charge and responsible for the affairs of the company and for the conduct of the business. A mere bald statement to the effect that they are in charge and responsible for the day-to-day affairs of the company is not sufficient. This Court is convinced that the complaint does not satisfy the requirements u/s.141 of the Negotiable Instruments Act and the petitioners, being non-executive directors, cannot be roped in as accused persons without there being a specific plea as to how and in what manner they were in charge and responsible for the conduct of the business of the company. Hence, the continuation of the proceedings as against the petitioners will only result in abuse of process of Court, which requires the interference of this Court in exercise of its jurisdiction u/s.482 Cr.P.C. These Criminal Original Petitions are allowed.
Issues Involved:
1. Whether the non-executive directors can be held liable under Section 138 of the Negotiable Instruments Act. 2. Whether the complaint satisfies the requirements under Section 141 of the Negotiable Instruments Act for prosecuting non-executive directors. 3. Whether the continuation of proceedings against non-executive directors constitutes an abuse of the process of the court. Summary: Issue 1: Liability of Non-Executive Directors under Section 138 of the Negotiable Instruments Act The petitioners, non-executive directors of the accused company, argued that they were not involved in the day-to-day affairs of the company. The complaint must make it clear how and in what manner they were in charge or responsible for the company's day-to-day affairs. The court referred to Form-32 issued by the Registrar of Companies, which confirmed the petitioners' status as non-executive directors since 2007. By definition, a non-executive director cannot be assumed to be involved in the day-to-day affairs of the company. Issue 2: Compliance with Section 141 of the Negotiable Instruments ActThe court examined the legal requirements under Section 141 of the Negotiable Instruments Act, which necessitates specific averments against directors to show how they were responsible for the conduct of the business. The court cited the Supreme Court's judgment in Gunmala Sales Private Limited v. Anu Mehta and Others, emphasizing that a mere bald statement is insufficient. There must be specific allegations detailing the directors' role in the company's affairs. Issue 3: Abuse of Process of CourtThe court concluded that the complaint did not satisfy the requirements under Section 141 of the Negotiable Instruments Act. The petitioners, being non-executive directors, cannot be roped in as accused persons without specific allegations of their involvement in the company's business conduct. The continuation of proceedings against the petitioners would result in an abuse of the process of the court. Thus, the court exercised its jurisdiction under Section 482 of the Code of Criminal Procedure to quash the proceedings against the petitioners. Order:The Criminal Original Petitions are allowed, and the proceedings in C.C.No.2337 of 2019 pending on the file of FTC-IV, Metropolitan Magistrate, George Town, Chennai, are quashed insofar as the petitioners are concerned. The lower court is directed to proceed with the complaint and complete the proceedings within six months from the date of receipt of this order. Consequently, connected miscellaneous petitions are closed.
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