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2025 (2) TMI 1049 - HC - Indian LawsDishonour of Cheque - vicarious liability of directors of the accused company - whether the petitioners had knowledge or were involved in the transaction alleged in the complaint? - HELD THAT - It is relevant to note that this Court can quash complaints under the NI Act at the pretrial stage in the exercise of its inherent jurisdiction under Section 482 of the CrPC if such unimpeachable material is brought forth by the accused persons which indicates that they were not concerned with the issuance of the cheques or that no offence is made out from the admitted facts. The Hon ble Apex Court in the case of Rathish Babu Unnikrishnan v. State (NCT of Delhi) 2022 (4) TMI 1434 - SUPREME COURT had discussed the scope of interference by the High Court against the issuance of process under the NI Act and held that Situated thus to non-suit the complainant at the stage of the summoning order when the factual controversy is yet to be canvassed and considered by the trial court will not in our opinion be judicious. Based upon a prima facie impression an element of criminality cannot entirely be ruled out here subject to the determination by the trial Court. Therefore when the proceedings are at a nascent stage scuttling of the criminal process is not merited. In line with the dictum of the Hon ble Apex Court in Rathish Babu Unnikrishnan v. State (NCT of Delhi) thus while exercising the power under Section 482 of the CrPC to quash a complaint at the pre-trial stage it is pertinent for this Court to examine whether the factual defence is of such impeachable nature that the entire allegations made in the complaint is disproved. In accordance with Section 141 of the NI Act in instances where the principal offender under Section 138 of the NI Act is a company every person who at such time when the cheque was dishonoured and no subsequent payment was made was in charge of the business of the company and was responsible for the conduct of business is deemed to be guilty of the offence under Section 138 of the NI Act. It is trite law that a person cannot be arrayed as an accused person merely due to association with the accused company in capacity of a Director. In the present case the evidence presented by the petitioners was sufficient to disprove the allegations without the need for a trial as the complaint lacked specific averments about the petitioners roles - the petitioners were not in charge of and responsible for the conduct of the business of the company at the time the offence was committed. Therefore they could not be held vicariously liable under Section 138 read with Section 141 of the NI Act. Conclusion - The evidence presented was sufficient to demonstrate that the directors were not responsible for the conduct of the business of the company at the time of the offence. Petition allowed.
1. ISSUES PRESENTED and CONSIDERED
The primary issue considered was whether the petitioners, who were directors of the accused company, could be held vicariously liable under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 (NI Act) for the dishonor of a cheque issued by the company. This involved determining if the petitioners were in charge of and responsible for the conduct of the business of the company at the time the offence was committed. 2. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents Section 138 of the NI Act pertains to the offence of dishonor of a cheque for insufficiency of funds. Section 141 extends this liability to every person who, at the time the offence was committed, was in charge of and responsible for the conduct of the business of the company. The Court referred to several precedents, including S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, K.K. Ahuja v. V. K. Vora, and National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, which emphasize the necessity of specific averments regarding the role of directors in the conduct of the company's business. Court's Interpretation and Reasoning The Court reiterated that vicarious liability under Section 141 of the NI Act must be strictly construed, and a person cannot be held liable merely due to their designation as a director. The Court emphasized that it must be shown that the director was in charge of and responsible for the conduct of the business of the company at the time the offence was committed. The Court also noted that the legal presumption under the NI Act requires a high threshold of evidence to disprove the allegations at a pre-trial stage. Key Evidence and Findings The petitioners presented several documents, including the company's Annual Return and internal communications, to demonstrate that they were not involved in the day-to-day affairs of the company. The petitioner in CRL.M.C. 2520/2020 also provided Form No. 32, indicating his status as a Non-Executive Director. These documents were considered unimpeachable evidence that the petitioners were not in charge of the company's business at the relevant time. Application of Law to Facts The Court applied the legal principles established in the relevant precedents to the facts presented by the petitioners. The absence of specific allegations in the complaint regarding the petitioners' involvement in the company's business, coupled with the evidence provided, led the Court to conclude that the petitioners could not be held liable under the NI Act. Treatment of Competing Arguments The complainant argued that the petitioners were responsible for the day-to-day affairs of the company and that the grounds raised by the petitioners were triable in nature. However, the Court found that the evidence presented by the petitioners was sufficient to disprove the allegations without the need for a trial, as the complaint lacked specific averments about the petitioners' roles. Conclusions The Court concluded that the petitioners were not in charge of and responsible for the conduct of the business of the company at the time the offence was committed. Therefore, they could not be held vicariously liable under Section 138 read with Section 141 of the NI Act. 3. SIGNIFICANT HOLDINGS Core Principles Established The Court reaffirmed the principle that vicarious liability under Section 141 of the NI Act requires specific averments about the accused's role in the conduct of the company's business. Merely holding a directorial position is insufficient to establish liability. Final Determinations on Each Issue The Court quashed the proceedings against the petitioners, finding that the evidence presented was sufficient to demonstrate that they were not responsible for the conduct of the business of the company at the time of the offence. Consequently, the petitions were allowed, and the proceedings emanating from CC No. 36097/2016 were quashed.
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