2024 (2) TMI 1294 - HC - Companies Law

Maintainability of complaint against the petitioner - Dishonour of Cheque - vicarious liability of Non-Executive Director - issuance of a legal demand notice to the accused company and its directors - HELD THAT - It is trite that the Non-Executive Director is not involved in the day to day affairs of the company or in the running of its business. Further, when a complaint is filed against the Director of the company, who is not a signatory of the dishonoured cheque, specific averments have to be made in the pleadings to substantiate the contentions in the complaint that such Director was incharge of and responsible for conduct of the business of the company unless such Director is designated Managing Director or Joint Managing Director. A bare reading of para 3 of the complaint shows that in the complaint it has not been substantiated that in what manner the petitioner/accused no. 4 was incharge of and responsible for conduct of the business of the accused company, which elaboration was mandatory since the petitioner is neither a signatory to the cheque nor was he the Managing Director or Joint Managing Director of the accused company. This being the position, the complaint is not maintainable against the petitioner. In view of the undisputed status of the petitioner as a Non-Executive Director and further regard being had to the fact that the petitioner is neither signatory to the cheque nor Managing Director or Joint Managing Director of the accused company, making him stand the trial would be an abuse of process of Court. Appeal disposed off.

Summary

Issues:
The judgment involves the issues of quashing and setting aside an order, summoning to stand trial in a complaint case, and the liability of a non-executive director in a company for dishonored cheques.

Issue 1: Quashing and Setting Aside Order:
The petition filed under Sections 482 CrPC sought the quashing of an order dated 11.04.2016 passed by the Metropolitan Magistrate summoning the petitioner to stand trial in a complaint case filed by the respondent, along with a prayer to quash the proceedings initiated by the respondent against the petitioner.

Details for Issue 1:
The petitioner, a Non-Executive Director of the accused company, was arraigned in the complaint case related to dishonored cheques issued by the company. The petitioner's counsel argued that the petitioner, being a non-executive director, was not involved in the day-to-day affairs of the company and had resigned before the issuance of the cheques. The counsel relied on previous court orders and Supreme Court decisions to support the argument that only those responsible for the conduct of the company's business can be held liable for offenses committed by the company.

Issue 2: Liability of Non-Executive Director for Dishonored Cheques:
The case delved into the question of whether the petitioner, as a Non-Executive Director, could be held liable for the dishonored cheques issued by the accused company, despite not being a signatory to the cheques or a Managing Director.

Details for Issue 2:
The respondent contended that the petitioner, as an Additional Director, continued to hold office according to the Companies Act provisions and was responsible for the conduct of the business of the company at the time of the offense. The respondent emphasized that the petitioner had been undergoing trial and was exempted from appearing in court permanently. The respondent also highlighted the filing of documents to show the petitioner's directorship status and argued that specific averments in the complaint indicated the petitioner's responsibility for the company's affairs during the relevant period.

Separate Judgment by the Judge:
The Hon'ble Justice Vikas Mahajan, after hearing arguments from both sides and examining the records, concluded that the complaint case against the petitioner, a Non-Executive Director, was not maintainable. The Judge noted that the complaint failed to substantiate how the petitioner was in charge of and responsible for the company's conduct, especially since he was neither a signatory to the cheques nor a Managing Director. Citing relevant legal precedents, the Judge quashed the complaint case against the petitioner.