2021 (10) TMI 431 - SC - Indian Laws

Dishonor of Cheque - funds insufficient - vicarious liability of Directors, who are not signatories to the cheques - whether the role of the appellants in the capacity of the Director of the defaulter company makes them vicariously liable for the activities of the defaulter Company as defined under Section 141 of the NI Act? - offence chargeable under Section 138 of the NI Act? HELD THAT - So far as Directors who are not the signatories to the cheques or who are not Managing Directors or Joint Managing Directors are concerned, it is clear that it is necessary to aver in the complaint filed under Section 138 read with Section 141 of the NI Act that at the relevant time when the offence was committed, the Directors were in charge of and were responsible for the conduct of the business of the company. In the case on hand, reading the complaint as a whole, it is clear that the allegations in the complaint are that at the time at which the cheques were issued by the Company and dishonoured by the Bank, the appellants were the Directors of the Company and were responsible for its business and all the appellants were involved in the business of the Company and were responsible for all the affairs of the Company. It may not be proper to split while reading the complaint so as to come to a conclusion that the allegations as a whole are not sufficient to fulfil the requirement of Section 141 of the NI Act. The complaint specifically refers to the point of time when the cheques were issued, their presentment, dishonour and failure to pay in spite of notice of dishonour - there are no hesitation in overruling the argument made by the learned counsel for the appellants. Indisputedly, on the presentation of the cheque of ₹ 10,00,000/ - dated 2nd June 2012, the cheque was dishonoured due to funds insufficient in the account and after making due compliance, complaint was filed and after recording the statement of the complainant, proceedings were initiated by the learned Magistrate and no error has been committed by the High Court in dismissing the petition filed under Section 482 CrPC under the impugned judgment - the High Court has rightly not interfered in exercise of its jurisdiction under Section 482 CrPC for quashing of the complaint. The proceedings could not be processed further in view of the interim order passed by this Court dated 17th October 2014 and because of the instant appeals, the other cases instituted by the respondent(s)complainant have been held up before the trial Court. Since these are the old cases instituted in the year 2012 and could not be processed further because of the pendency of the appeals in this Court, it is considered appropriate to observe that let all the three cases of which a reference been made in para 17 of this Judgment be clubbed together and be disposed of expeditiously as possible on its own merits in accordance with law without being influenced/inhibited by the observations made in the present judgment not later than six months from the date parties record their attendance before the trial Court. Appeal dismissed.

Summary

Issues Involved:
1. Vicarious liability of directors under Section 138 of the Negotiable Instruments Act, 1881.
2. Specific averments required in the complaint under Section 141 of the NI Act.
3. The role of non-executive directors in the context of cheque dishonour.
4. Compliance with statutory requirements for issuing process under Section 138 of the NI Act.
5. The adequacy of the complaint’s allegations to fulfill Section 141 requirements.

Issue-wise Detailed Analysis:

1. Vicarious Liability of Directors under Section 138 of the NI Act:
The appeals were directed against the High Court's dismissal of petitions seeking to quash criminal complaints under Section 138 of the NI Act. The appellants, directors of a private limited company, were accused of issuing a cheque that was dishonoured due to insufficient funds. The Supreme Court examined whether the directors could be held vicariously liable for the company's actions under Section 141 of the NI Act. The Court reiterated that for directors to be held liable, the complaint must specifically aver that they were in charge of and responsible for the conduct of the company's business at the time the offence was committed.

2. Specific Averments Required in the Complaint under Section 141 of the NI Act:
The Court emphasized that a complaint must contain specific averments that the accused directors were responsible for the conduct of the business of the company. This requirement is essential under Section 141 of the NI Act. The Court referred to the precedent set in S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and Another, which held that without such specific averments, the complaint does not meet the statutory requirements.

3. The Role of Non-Executive Directors in the Context of Cheque Dishonour:
The appellants argued that they were non-executive directors and not responsible for the day-to-day business of the company. The Court noted that the complaint and supporting documents indicated that the appellants were directors and actively involved in the company's business. The Court held that the appellants' contention of being non-executive directors could be their defense during the trial and was not sufficient to quash the complaint at this stage.

4. Compliance with Statutory Requirements for Issuing Process under Section 138 of the NI Act:
The Court highlighted the importance of the Magistrate's duty to ensure that the complaint contains sufficient grounds for proceeding before issuing process. The Court referred to its earlier decisions, emphasizing that the Magistrate must be satisfied that the complaint meets the statutory requirements of Sections 138 and 141 of the NI Act. The complaint in this case was found to have sufficient averments to justify the issuance of process.

5. The Adequacy of the Complaint’s Allegations to Fulfill Section 141 Requirements:
The Court analyzed the complaint and found that it contained specific allegations that the appellants were responsible for the conduct of the company's business at the time the offence was committed. The complaint detailed the issuance, dishonour, and subsequent legal notice regarding the cheque. The Court concluded that the complaint met the requirements of Section 141 of the NI Act, and the High Court was correct in not quashing the complaint.

Conclusion:
The Supreme Court dismissed the appeals, holding that the complaint contained sufficient averments to proceed against the appellants under Section 138 read with Section 141 of the NI Act. The Court directed that the pending cases be clubbed and disposed of expeditiously, within six months from the date the parties record their attendance before the trial court. The appeals were dismissed, and any pending applications were disposed of accordingly.