2019 (11) TMI 165 - HC - Indian Laws

Dishonor of Cheque - cheques returned for funds insufficient - mandatory provisions of Section 138 of the Negotiable Instruments Act have been complied or not - HELD THAT - There are specific allegations made by the complainant against the present Applicant that he is the director of accused No.1 company along with other accused and they are all collectively involved in the core functioning of the company including all its major decision making i.e. finance etc and, they were and are in charge of and responsible for the conduct of the business and affairs of the company at the time commission of the offence. It is also alleged that Accused Nos. 2 to 8 play an active role in the functioning affairs and business activities of the company. The complainant has specifically alleged that Accused Nos. 2 to 8 have dealt with Respondent No.1 complainant at the time of the transaction with the complainant. It is required to be noted that the present Applicant is original accused No.6 in the complaint. This Court is of the opinion that, whether the appointment of the Applicant was an independent director or the director of the company and, whether he was playing active role in the day to day affairs of the company at the relevant time or not, would be a matter for appreciation of the contentions of the parties by the trial Court. It would depend upon appreciation of evidence, and the documents filed in the Trial Court. The question as to whether the present Applicant was an independent director of accused No.1 company or he was a director of accused No.1 company at the relevant time has to be decided only during trial after giving opportunity to the parties to lead evidence in that regard. Application dismissed.

Summary

Issues Involved:
1. Validity of the orders passed by the Metropolitan Magistrate directing issuance of process under Section 138 of the Negotiable Instruments Act.
2. Role and liability of an independent director in the context of Section 138 of the Negotiable Instruments Act.
3. Prima facie case establishment and whether the Applicant was involved in the core functioning and decision-making of the company.

Issue-wise Detailed Analysis:

1. Validity of the Orders Passed by the Metropolitan Magistrate:
The Applicant challenged the orders passed by the learned Metropolitan Magistrate, 28th Court, Esplanade, Mumbai, which directed the issuance of process against the Applicant and other accused under Section 138 of the Negotiable Instruments Act. The court noted that the complainant had complied with the mandatory provisions of Section 138 and established a prima facie case against the accused. Consequently, the Magistrate's order to issue process was upheld, and the Criminal Applications were rejected.

2. Role and Liability of an Independent Director:
The Applicant contended that he was an independent director of the accused company (Accused No.1) and had no role in its day-to-day affairs, administration, or financial transactions. He argued that as an independent director, he was not responsible for the company's failure to honor the cheque issued to the complainant. The court examined documents, including the Applicant's resignation letter and records from the Registrar of Companies, which indicated his role as an independent director. However, the court concluded that whether the Applicant was merely an independent director or actively involved in the company's affairs at the relevant time was a matter to be determined during the trial.

3. Prima Facie Case Establishment and Applicant's Involvement:
The complainant alleged that the Applicant, along with other accused, was involved in the core functioning and decision-making of the company, including financial decisions. The complaint stated that the Applicant was a director and played an active role in the company's business activities. The court noted that the Applicant's designation as a director was mentioned in Form No.DIR-12 and that he had consented to act as a director. Given these allegations and the material placed on record, the court held that whether the Applicant was actively involved in the company's affairs at the relevant time would be determined during the trial. The court emphasized that the trial court would appreciate the evidence and documents to decide the Applicant's role and liability.

Conclusion:
The High Court concluded that there was no ground to interfere with the Magistrate's order of issuing process against the Applicant. The court rejected all Criminal Applications and discharged the rule, keeping all contentions open for trial. The court also directed the trial court to expedite the hearing and conclude the proceedings by September 30, 2019, considering the relevant provisions of the Negotiable Instruments Act and the judgment of the Apex Court in Indian Bank Association v. Union of India.