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2024 (8) TMI 1267 - HC - Indian LawsDishonour of cheque - seeking quashing of summoning order and complaint under Section 138 read with Sections 141 and 142 of the NI Act - vicarious liability of a Director - HELD THAT - There is unanimity in judicial opinion that necessary, specific and unambiguous averments ought to be made in a complaint under Section 138 of the NI Act, before the person accused of the offence is subjected to criminal prosecution and it is not enough to make a general and bald allegation that the person was in charge of the day to day affairs of the company. The least that is required is to ascribe a specific role to a person before any criminal liability can be fastened on him/her and from the complaint itself, a reasonable and plausible inference must be discernible that the person accused was in charge of and responsible to the firm for the conduct of its business, with a caveat that a hyper-technical approach should not be adopted in quashing the complaints since the laudable object is to prevent dishonour of cheques and sustain the credibility of commercial transactions, for which avowed purpose Legislature has enacted Sections 138 and 141 of the NI Act. In SABITHA RAMAMURTHY ANR. VERSUS RBS. CHANNABASAVARADHYA 2006 (9) TMI 490 - SUPREME COURT the Supreme Court restated the requirements of Section 141 of the NI Act and held that the complainant must make a clear statement of fact to enable the Court to arrive at a prima facie opinion, even if the allegations are that the accused is vicariously liable. Section 141 of the NI Act raises a legal fiction where a person although not personally liable for commission of an offence, would be vicariously liable but before a person can be made vicariously liable, strict compliance with statutory requirements is to be insisted. Coming to the facts of the present case, perusal of Form No. DIR-12 of the accused company BTIL reflects that Petitioners No. 1 and 3 were Independent Non-Executive Directors while Petitioner No. 2 was Non-Executive Director at the time of commission of the alleged offence. In view of Section 141 of NI Act and Section 149 of Companies Act, 2013, Petitioners could be held vicariously liable only if it was shown that they were in charge of and responsible for the conduct of the business of the company at the time of commission of offence and not otherwise and complainant was required to specifically aver in the complaint as to how the Petitioners were in charge of day to day affairs of the company BTIL as well as conduct of its business, as per settled law - There are no allegations that Petitioners had any role in the dishonour of the cheque on presentation and admittedly, Petitioners were not the signatories. It is settled that Section 141 is a penal provision creating vicarious liability and must be strictly construed and therefore, bald cursory statements in the complaint in the absence of a specific role being ascribed to a Director and without spelling out how and in what manner the accused were in charge of or responsible to the accused company for the conduct of its business, vicarious liability cannot be fastened. It is also settled that it is not enough to state in the complaint that a particular person was a Director, Managing Director, CEO, etc. As held by the Supreme Court in S.M.S. Pharmaceuticals 2005 (9) TMI 304 - SUPREME COURT it may be that in a given case, a person may be a Director but may know nothing about the day to day functioning of the company and there is no universal rule that a Director is in charge of its everyday affairs. Sections 138 and 141 of the NI Act were introduced in the Act to encourage the wider use of a cheque and to enhance the credibility of the instrument. The intent of the Legislature in carrying out the amendment was to encourage people to have faith in the efficacy of banking transactions and use of cheques as negotiable instruments. To balance, a penal provision was enacted to ensure that the drawer of a cheque does not misuse the provisions and honours his commitment. The issue herein concerns the criminal liability arising out of dishonour of a cheque. Normally, the criminal liability is not vicarious i.e. one cannot be held criminally liable for the act of another. Section 141 of NI Act is, however, an exception where the offence under Section 138 is committed by a Company but the liability extends to the officers of the Company, subject to fulfilment of the conditions under Section 141, as a caveat - The present complaint fails to pass muster and basis the same, no criminal liability can be fastened on the Petitioners. Since the contents and averments in the complaint are insufficient to attract the provisions under Section 141 (1) of NI Act, the impugned order dated 14.12.2017 passed by learned MM (NI Act), Patiala House Courts, New Delhi, in CC No. 16632/2017 is set-aside to the extent of issuing summons to the present Petitioners for alleged commission of the offence punishable under Section 138 of Negotiable Instruments Act, 1881. Petition allowed.
Issues Involved:
1. Quashing of summoning order and complaint under Section 138 read with Sections 141 and 142 of the NI Act. 2. Vicarious liability of Independent Non-Executive Directors and Non-Executive Directors. 3. Validity of the complaint and sufficiency of averments. 4. Applicability of Section 149(12) of the Companies Act, 2013. 5. Role and responsibility of directors in the day-to-day affairs of the company. 6. Use and misuse of security cheques. Issue-wise Detailed Analysis: 1. Quashing of Summoning Order and Complaint under Section 138 read with Sections 141 and 142 of the NI Act: The petitioners sought quashing of the summoning order dated 14.12.2017 and the complaint in Ct. Case No. 16632/2017. The court examined whether the complaint disclosed the commission of the offence alleged and whether the petitioners were vicariously liable under Section 138 read with Sections 141 and 142 of the NI Act. The court noted that the complaint lacked specific averments as to how the petitioners were in charge of or responsible for the conduct of the day-to-day business of the company, which is a mandatory requirement under Section 141(1) of the NI Act. 2. Vicarious Liability of Independent Non-Executive Directors and Non-Executive Directors: The court emphasized that vicarious liability in criminal jurisprudence requires that the persons sought to be made criminally liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. The court referred to several Supreme Court judgments, including S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Another, which held that merely holding a designation or office in a company is not sufficient to cast criminal liability. The court concluded that the petitioners, being Independent Non-Executive Directors and Non-Executive Directors, were not in charge of the day-to-day affairs of the company and thus could not be held vicariously liable. 3. Validity of the Complaint and Sufficiency of Averments: The court scrutinized the complaint and found that it contained only bald and vague allegations against the petitioners. The complaint did not spell out how and in what manner the petitioners were in charge of and responsible for the conduct of the business of the company. The court held that such general statements were not sufficient to attract the offence under Section 138 of the NI Act. The court reiterated that the complaint must necessarily contain specific averments to make the accused vicariously liable. 4. Applicability of Section 149(12) of the Companies Act, 2013: Section 149(12) of the Companies Act, 2013, lays down the conditions under which Independent and Non-Executive Directors may be held liable for any omission or commission by the company. The court noted that the complaint did not contain specific averments that the offence was committed with the knowledge, consent, or connivance of the petitioners, as required under Section 149(12). The court held that in the absence of such specific averments, the petitioners could not be held liable under this provision. 5. Role and Responsibility of Directors in the Day-to-Day Affairs of the Company: The court examined the role and responsibility of the petitioners in the company and found that they were not involved in the day-to-day affairs of the company. The court referred to the resolutions passed by the Board of Directors and Form No. DIR-12, which reflected the status of the petitioners as Independent Non-Executive Directors and Non-Executive Directors. The court concluded that the petitioners had no role in the dishonour of the cheque and were not responsible for the conduct of the business of the company. 6. Use and Misuse of Security Cheques: The court noted that the cheque in question was an undated blank cheque given as security, which was allegedly misused by the complainant. The court observed that the cheque bore the previous name of the company, indicating that it was issued before the change of the company's name. The court held that the misuse of the cheque and the lack of an enforceable debt or liability against the petitioners further weakened the case against them. Conclusion: The court allowed the petitions and set aside the summoning order dated 14.12.2017 to the extent of issuing summons to the petitioners. The court held that the complaint did not meet the mandatory requirements under Section 141(1) of the NI Act and that the petitioners could not be held vicariously liable for the alleged offence. The court emphasized the need for specific averments in the complaint to establish the role and responsibility of the accused in the conduct of the business of the company.
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