2010 (2) TMI 590 - SC - Companies Law

Whether the order of the High Court quashing the summoning orders insofar as the respondents are concerned is sustainable and what should be the averments in the complaint under section 138 read with section 141 of the Act against the Director of a Company before he can be subjected to criminal proceedings? Held that - Appeal dismissed. In agreement with the conclusion arrived at by the High Court and in the absence of specific averment as to the role of the respondents and particularly in view of the acceptable materials that at the relevant time they were in no way connected with the affairs of the company, we reject all the contentions raised by learned counsel for the appellants.

Issues Involved:
1. Quashing of summoning orders under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881.
2. Necessary averments in complaints under Section 138 read with Section 141 of the Act.
3. Vicarious liability of Directors in cases of cheque dishonour.
4. Specific roles and responsibilities of Directors in the context of Section 141.

Issue-Wise Detailed Analysis:

1. Quashing of Summoning Orders:
The appeals were filed by the National Small Industries Corporation Limited and DCM Financial Services Ltd. against the High Court's orders quashing the summoning orders passed by the trial Court under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881. The High Court quashed these orders on the grounds that the complaints lacked specific averments against the Directors, showing their responsibility for the conduct of the company's business at the time of the offence.

2. Necessary Averments in Complaints:
The Supreme Court emphasized that Section 141 of the Act requires specific averments in the complaint to show how and in what manner the Director was responsible for the conduct of the business of the company. It is not sufficient to make a bald statement that the Director is in charge of and responsible for the conduct of the business of the company. The complaint must spell out the role of the Director in the alleged offence, adhering to the strict interpretation of penal statutes.

3. Vicarious Liability of Directors:
The Court reiterated that vicarious liability under Section 141 can only be fastened on those who were in charge of and responsible for the conduct of the business of the company at the time of the offence. Merely holding a designation or office in a company is not enough to attract criminal liability. The Court cited several precedents, including S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, to underline that specific allegations must be made against the Directors to hold them vicariously liable.

4. Specific Roles and Responsibilities of Directors:
The Court analyzed the complaints filed by National Small Industries Corporation Ltd. and DCM Financial Services Ltd. and found that the necessary ingredients to attract Section 141 were not satisfied. The complaints contained general statements without specific details about the Directors' roles in the conduct of the company's business. The Court held that without specific averments, the complaints could not be entertained. The Court also noted that the Directors in question were not involved in the company's affairs at the relevant time, further weakening the case against them.

Conclusion:
The Supreme Court upheld the High Court's decision to quash the summoning orders, emphasizing the need for specific averments in complaints under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881. The Court clarified that vicarious liability cannot be inferred merely based on a person's designation in the company; instead, it must be clearly established through specific allegations and evidence. Consequently, all the appeals were dismissed.

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