2006 (9) TMI 490 - SC - Companies Law

Statutory requirements contained in Section 141 of the Negotiable Instruments Act had not been complied with - Held that - Appeal allowed. It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases -

Summary

Issues:
1. Liability of directors under Section 138 of the Negotiable Instruments Act.
2. Compliance with statutory requirements under Section 141 of the Act.
3. Vicarious liability of directors in a company.

Analysis:
1. The case involved two cheques issued by a company for a loan repayment, which were dishonored, leading to a complaint under Section 138 of the Negotiable Instruments Act. The complaint implicated the appellants, who were described as directors of the company at the material time. The statutory provisions under Section 138 establish the liability of the person who issued the dishonored cheque. However, the key issue was whether the appellants, as directors, could be held personally liable under this section.

2. Section 141 of the Act deals with offenses by companies, holding individuals responsible for the conduct of the company's business. The complaint petitions in this case did not fulfill the statutory requirements of Section 141, as they failed to clearly establish the vicarious liability of the accused directors. The court emphasized the necessity of strict compliance with the statutory provisions to infer vicarious liability, which was not met in this instance.

3. The judgments cited in the case, including Monaben Ketanbhai Shah and Another v. State of Gujarat and Others, highlighted the importance of specific averments in complaints to establish vicarious liability under Section 141. The court reiterated that merely being a director of a company is not sufficient to impose liability under this section. The directors must be shown to be in charge of and responsible for the business conduct of the company at the relevant time to be held vicariously liable.

In light of the legal precedents and the lack of compliance with the statutory requirements in the complaint petitions, the Supreme Court allowed the appeals, quashed the processes issued against the appellants, and set aside the impugned judgments. The court emphasized the need for clear averments to establish vicarious liability under Section 141, ultimately ruling in favor of the appellants in this case.