2024 (11) TMI 280 - HC - Indian Laws

Dishonour of Cheque - Liability of a non-executive Director - vicarious liability - Section 138 read with Sections 141/142 of the Negotiable Instruments Act, 1881 - HELD THAT - The law as regards the liability of a Director for an offence under Section 138 NI Act committed by a company is no longer res integra. In SMS PHARMACEUTICALS LTD. VERSUS NEETA BHALLA 2005 (9) TMI 304 - SUPREME COURT , the Supreme Court while dealing with the aforesaid, discussed in detail the role of a Director in a company as well as their liability. It is a well-settled principle in law that if any Director seeks quashing of a complaint under Section 138 NI Act or any process issued therein, then one must show that the complaint is bereft of the appropriate pleadings/averments which would bring him into the fold of the rigours of Section 141 NI Act and in this regard, one must bring on record, certain sterling and incontrovertible evidence showing that the accused is not concerned with issuance of the said cheques, which can only be seen by the High Court exercising powers under Section 482 Cr.P.C. In the present case, as discernible from the complaint, there is a dearth of any specific averments and only a general mention of accused Nos. 3-8 as the Directors of accused company and being in charge and responsible for the conduct, affairs, and business of the company, is alleged. The petitioner is not even a signatory to the subject cheques. It is in fact the Managing Director i.e., accused No. 2, who is deemed in-charge of the day to day affairs of the company and is actively involved and responsible for the affairs of the company, who has also signed the subject cheques. Indisputably, the other accused persons, who were also Directors of the company, have been dropped from the list of accused. Additionally, the petitioner, being designated as Chairman as per the 27th Annual Report, cannot be deemed to be in-charge of the day to day as per the principles established in the judgment of YASHOVARDHAN BIRLA VERSUS CECIL WEBBER ENGINEERING LTD. ORS. 2023 (4) TMI 706 - DELHI HIGH COURT , in absence of any additional material on record. In view of the uncontroverted fact that the subject complaints lack the necessary averments to endorse as to what was the active role of the petitioner and as to how the petitioner was guilty or responsible for the offence, this Court is of the opinion that continuance of the present proceedings qua the petitioner would amount to abuse of the process of the Court. Petition allowed.

Summary

Issues Involved:

1. Quashing of criminal complaints under Section 138 of the Negotiable Instruments Act, 1881.
2. Liability of a non-executive Director under Section 141 of the Negotiable Instruments Act.
3. Adequacy of averments in the complaint to establish vicarious liability.
4. Delay in filing the petition and its implications.

Issue-wise Detailed Analysis:

1. Quashing of Criminal Complaints under Section 138 of the N.I. Act:

The petitioner sought the quashing of criminal complaints filed under Section 138 of the Negotiable Instruments Act, 1881, which were pending before the Judicial Magistrate First Class, Patiala House Courts, Delhi. The complaints arose from dishonoured cheques issued by the accused company in discharge of a loan liability. The petitioner, a non-executive Director, contested that he was not involved in the day-to-day affairs of the company and had resigned before the cheques were dishonoured. The court examined whether the complaints contained sufficient averments to hold the petitioner liable under Section 138 read with Section 141 of the N.I. Act.

2. Liability of a Non-executive Director under Section 141 of the N.I. Act:

The court referred to the Supreme Court's judgment in S.M.S Pharmaceuticals Ltd. v. Neeta Bhalla, which clarified that mere designation as a Director does not automatically make one liable under Section 141. It emphasized that liability arises from being in charge of and responsible for the conduct of business at the time of the offence. The court noted that the petitioner was neither a signatory to the cheques nor involved in the day-to-day operations, and his role as a non-executive Director did not imply responsibility for the company's affairs.

3. Adequacy of Averments in the Complaint:

The court scrutinized the complaints for specific averments linking the petitioner to the offence. It found that the complaints contained only general allegations without detailing the petitioner's role in the company's affairs. Citing precedents, the court reiterated that complaints must disclose necessary facts to establish vicarious liability. The absence of specific allegations against the petitioner, coupled with the fact that other Directors in similar positions were not prosecuted, led the court to conclude that the complaints were insufficient to sustain proceedings against the petitioner.

4. Delay in Filing the Petition and Its Implications:

The respondent argued that the petition was filed after a significant delay without explanation and that the petitioner did not challenge the summoning order before the Revisional Court. However, the court focused on the substantive issue of whether the complaints adequately implicated the petitioner. It determined that the lack of specific allegations and the role of the petitioner warranted quashing the complaints, irrespective of the procedural delay.

Conclusion:

The court concluded that the complaints lacked necessary averments to establish the petitioner's liability under Section 138 read with Section 141 of the N.I. Act. The petitioner, being a non-executive Director and not involved in the company's day-to-day affairs, could not be held vicariously liable. Consequently, the court quashed the complaints and all consequential proceedings against the petitioner, thus allowing the petitions.