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2020 (3) TMI 247 - HC - Indian LawsDishonor of Cheque - insufficiency of funds - vicarious liability - Summon of an accused - Since no payment was made within the statutory period of 15 days, a complaint under Section 138 read with Sections 141/142 of NI Act was filed on 30.01.2017 - HELD THAT - Admittedly, the petitioners are neither the Managing Directors nor the Authorized Signatories of the accused company. The accused company and the Managing Director are arrayed as accused No.1 and 2 along with others in the complaint pending before the concerned Metropolitan Magistrate. A perusal of the complaint filed under Section 138 r/w Sections 141/142 of NI Act filed by the complainant shows that except for the general allegation stating that the petitioners were responsible for control and management and day to day affairs of the accused company, no specific role has been attributed to the petitioners. To fasten the criminal liability under The Negotiable Instruments Act, 1881, the above generalised averment without any specific details as to how and in what manner, the petitioners were responsible for the control and management of affairs of the company, is not enough. In Pepsi Foods v. Special Judicial Magistrate and Ors. 1997 (11) TMI 518 - SUPREME COURT , it was held that summoning an accused person cannot be resorted to as a matter of course and the order must show due application of mind. Petition allowed.
Issues Involved:
1. Challenge to the summoning order under Section 138 of the Negotiable Instruments Act (NI Act). 2. Vicarious liability of Non-executive Directors under Section 141 of the NI Act. 3. Specificity of allegations required in complaints under Section 138 read with Sections 141/142 of the NI Act. Issue-wise Detailed Analysis: 1. Challenge to the summoning order under Section 138 of the NI Act: The petitioners challenged the order dated 14.02.2017 passed by the Metropolitan Magistrate summoning them for the offence punishable under Section 138 of the NI Act. The respondent, a private limited company, filed a complaint alleging that the petitioners, as regular purchasers, had issued four cheques totaling ?36,46,758/-, which were dishonored due to insufficient funds. A legal notice was issued, and upon non-payment within the statutory period, a complaint was filed under Section 138 read with Sections 141/142 of the NI Act. 2. Vicarious liability of Non-executive Directors under Section 141 of the NI Act: The petitioners, described as independent Non-executive Additional Directors, contended that they were not involved in the day-to-day affairs of the company. They relied on various forms and the Annual Report of the accused company to support their status as independent directors. The court examined precedents, including S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, which clarified that only those in charge of and responsible for the conduct of business at the time of the offence are liable under Section 141. The court also referenced K.K. Ahuja v. V.K. Vora, emphasizing that mere designation as a director is insufficient for liability unless specific roles and responsibilities are detailed. 3. Specificity of allegations required in complaints under Section 138 read with Sections 141/142 of the NI Act: The court noted that the complaint contained general allegations without specific details about the petitioners' roles in the company's management. Citing Pooja Ravinder Devidasani v. State of Maharashtra, the court reiterated that vicarious liability under Section 141 requires clear averments showing how the director was responsible for the company's business conduct. The court highlighted that the complaint must spell out the connection between the accused and the offence, as established in Nandakumar & Ors. v. M/s ECE Industries Ltd., and Chintalapati Srinivasa Raju v. Securities and Exchange Board of India. Conclusion: The court concluded that the generalized averments in the complaint were insufficient to establish the petitioners' liability under Section 141 of the NI Act. The summoning order lacked the necessary application of mind, as required by Pepsi Foods v. Special Judicial Magistrate. Consequently, the court quashed the summoning order against the petitioners, emphasizing the need for specific allegations to fasten criminal liability under the NI Act. Order: The impugned order summoning the petitioners for the offence under Section 138 of the NI Act was quashed. A copy of the order was directed to be communicated to the concerned trial court.
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