2021 (12) TMI 331 - HC - Indian Laws

Dishonor of Cheque - insufficiency of funds - signatory of the cheque - vicarious liability of NI Act - HELD THAT - Considering the fact that the petitioners A5, A7, A8 and A9 were not the drawers of the cheques and had not signed the same and no specific averments were made in the complaint against them showing the role played by them as to how they were responsible for the conduct of day to day business of the company, it is considered fit to quash the proceedings against the petitioners. The Criminal petition allowed.

Summary

Issues Involved:
1. Quashing of proceedings under Section 138 of the Negotiable Instruments Act (NI Act) read with Sections 141 and 142.
2. Responsibility and liability of directors for the conduct of business and issuance of cheques.
3. Previous judgments and their implications on the current case.

Issue-wise Detailed Analysis:

1. Quashing of proceedings under Section 138 of the NI Act:
The petitioners filed under Section 482 Cr.P.C. to quash the proceedings in CC No.1043 of 2010. The complaint was initially filed under Section 138 of the NI Act read with Sections 141 and 142, alleging that the company issued cheques which were dishonored due to "INSUFFICIENT FUNDS." Legal notices were issued to all accused, but the petitioners failed to pay the cheque amount within the stipulated time, leading to the complaint.

2. Responsibility and liability of directors:
The petitioners argued that they were merely name-sake directors without involvement in the day-to-day affairs of the company, which was managed solely by the Managing Director. They claimed to have resigned from their positions before the cheques were issued and filed Form No.32 with the Registrar of Companies to record their resignation. The court noted that the complaint did not specify the roles of the petitioners in the company’s daily operations or their involvement in the issuance of the cheques. The cheques were signed by the Managing Director, not the petitioners.

3. Previous judgments and their implications:
The court referred to several judgments, including SMS Pharmaceuticals Ltd. v. Neeta Bhalla and Ors., which emphasized the need for specific averments in a complaint to hold directors liable under Section 141 of the NI Act. It was established that merely holding a position as a director does not make one liable; there must be specific allegations showing their responsibility for the conduct of the company's business. In K.K.Ahuja v. V.K.Vora and Another, it was held that a person must be in overall control of the company's day-to-day business to be held liable. The court also cited Aparna A Shah v. Sheth Developers Pvt. Ltd. and Another, which reiterated that criminal liability primarily falls on the drawer of the cheque.

Conclusion:
Considering the cited judgments and the fact that the petitioners were not the drawers of the cheques and had not signed them, and no specific averments were made against them in the complaint, the court found it fit to quash the proceedings against the petitioners. The Criminal Petition was allowed, quashing the proceedings against the petitioners in CC No.1043 of 2010. All miscellaneous petitions pending stood closed.