2023 (11) TMI 1119 - HC - Indian Laws

Dishonour of Cheque - Vicarious liability of director - Section 141(1) of the Negotiable Instruments Act, 1881 - HELD THAT - Mere extracting the expression used in Section will not satisfy the requirement to hold a director vicariously liable for the offence under Section 138 of Negotiable Instruments Act, 1881. The averment of the complaint must satisfy the test, whether there are averments to prima facie satisfy the Court taking cognizance that the person deemed to be guilty of offence have role in the conduct of the business and in charge of the company - As far as the instant case, the cheque is for the discharge of the loan advanced to the company for its business purpose. The petitioner had stood guarantee for the loan advanced. She cannot deny knowledge of the borrowing or issuance of cheque just because she is not the signatory of the subject cheque. This Criminal Original Petition is dismissed.

Summary

Issues involved:
The case involves the issue of vicarious liability of a director in a private complaint for an offence under Section 138 of the Negotiable Instruments Act, 1881.

Details of the Judgment:

Issue 1: Vicarious Liability of Director

The petitioner, a director of a company, challenged her involvement in a complaint under Section 138 of the Negotiable Instruments Act, claiming lack of active involvement in the company's affairs and absence of specific averments implicating her in the cheque issuance. The petitioner argued that without meeting the criteria of Section 141(1) of the Act, the complaint against her should be quashed.

In support of the petition, the petitioner's counsel cited judgments emphasizing the necessity of specific averments to establish a director's liability under Section 141 of the Act. The complaint alleged that the petitioner, as a director, was responsible for the conduct of the company's business, leading to her vicarious liability.

The court considered relevant precedents, including the requirement to show how a director was in charge of the company's affairs to establish vicarious liability. The court highlighted that mere directorship does not automatically imply liability, emphasizing the need for specific allegations against the director regarding their role in the company's operations.

The court differentiated the present case from previous judgments, noting that the complaint clearly linked the borrowed money to the company's business, for which the petitioner had guaranteed repayment. The petitioner's claim of non-involvement in day-to-day operations lacked specific averments in the complaint, supporting the allegation of her responsibility for the company's conduct.

Consequently, the court dismissed the Criminal Original Petition, stating that the petitioner, as a director, could not deny knowledge of the loan or cheque issuance due to her role in guaranteeing the loan for the company's business purposes. The burden was on the petitioner to refute the averments implicating her in the company's conduct, leading to the dismissal of the quash petition.

This summary provides a detailed overview of the judgment, focusing on the issue of vicarious liability of a director in a complaint under Section 138 of the Negotiable Instruments Act, 1881.