2021 (3) TMI 851 - HC - Indian Laws

Dishonor of Cheque - vicarious liability of the Directors for having committed the offence under Section 138 of the N.I.Act - HELD THAT - Perusal of the papers produced along with the petition shows that the cheque in question bearing No.000093 dated 28/7/2015 drawn on an account maintained in Bank by accused No.1 is at page 18 of the petition papers. It is signed only by accused No.2. The signatures of the present petitioners does not appear on the same. There is no allegation in the entire complaint that the present petitioners were either incharge of the Administration/Business of the company or that they are signatories to the cheque in question. Reliance placed in the case of SMS PHARMACEUTICALS LTD. VERSUS NEETA BHALLA 2005 (9) TMI 304 - SUPREME COURT where it was held that The question notes that the Managing Director or Joint Managing Director would be admittedly in charge of the company and responsible to the company for conduct of its business. When that is so, holders of such positions in a company become liable under section 141 of the Act. By virtue of the office they hold as Managing Director or Joint Managing Director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under section 141. So far as signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of section 141. The proceedings on the file of learned I Additional JMFC, Bagalkot, for offence punishable under Section 138 of the Negotiable Instruments Act, 1881 is quashed - petition allowed.

Summary

Issues:
Quashing of proceedings under Section 482 of Cr.P.C. for offence under Section 138 of the Negotiable Instruments Act, 1881.

Analysis:
The respondent filed a private complaint against the petitioners and others for dishonour of a cheque issued by a company, of which the petitioners were directors. The petitioners argued that they were not in charge of the company's administration or signatories to the cheque, thus vicarious liability cannot be imposed on them under Section 138 of the N.I. Act. The court noted that the cheque was signed only by one accused, not the petitioners. Referring to precedents, the court emphasized the need for specific averments in a complaint to establish vicarious liability. Quoting S.M.S. Pharmaceuticals Ltd. case, the court highlighted that merely being a director is not sufficient to establish liability under Section 138. The court concluded that the complaint against the petitioners lacked necessary averments to establish their liability and thus quashed the proceedings against them.

The court observed that the complaint did not contain allegations that the petitioners were in charge of the company's business or signatories to the dishonoured cheque. Citing relevant legal precedents, the court stressed the importance of specific averments in complaints to establish vicarious liability under Section 138 of the N.I. Act. The court reiterated that being a director alone does not automatically imply liability under Section 138. As the petitioners were not shown to be in charge of the company's affairs or signatories to the cheque, the court found the complaint misconceived and lacking in essential averments. Consequently, the court allowed the petitions and quashed the proceedings against the petitioners under Section 138 of the Negotiable Instruments Act, 1881.