2022 (1) TMI 102 - HC - Indian Laws

Dishonor of Cheque - petitioners are the Directors of the first accused company - vicarious liability of Directors in the company - Section 141 of the Negotiable Instruments Act - HELD THAT - It is settled law that there is no vicarious liability in criminal jurisprudence, unless the Statue makes them vicariously liable for the offence committed by the company. When the offence is committed by the company, merely because some persons are directors of the company, they cannot be roped into and make them liable for the offence committed by the company - Section 141 of the Negotiable Instruments Act, provides that when the company committed any offence, every person who, at the time the offence was committed, was incharge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. By virtue of the legal fiction created under Section 141 of the Act, every person who are all in charge of and responsible for the day to day affairs of the company are deemed to have committed the offence - a basic averment has to be made in the complaint, which is an essential requirement under Section 141 of the Negotiable Instruments Act. In the absence of any such specific averment in the complaint merely because the petitioners are being the directors of the company, they cannot be made liable for offence under Section 141 of the Negotiable Instruments Act. There is no specific averment in the complaint to the effect that the petitioners who are all the directors of the company are in charge of and responsible for the conduct of the business of the company. Merely saying that they are directly involved in the affairs of the company is not sufficient. Being a director of the company, he may be involved in the affairs of the company as attending the meeting of the Board of Directors, guiding the company in administrative and policy matters. But, that itself is not sufficient to hold that they are in charge of and responsible to the day to day affairs and the conduct of the business of the company - the Judicial Magistrate is expected to consider all the materials available before him and on due application of mind form an opinion that a prima facie case is made out in respect of an offence, then only the learned Judicial Magistrate can proceed further and issue process against the accused. The averment made in the complaint is not sufficient to fix criminal liability against the petitioners and the learned Magistrate without considering the same has taken cognizance of the offence against the petitioners and has issued summons to them - petition allowed.

Summary

Issues Involved:
1. Quashing of the complaint under Section 138 of the Negotiable Instruments Act, 1881.
2. Determination of the liability of directors and secretary of the company under Section 141 of the Negotiable Instruments Act.

Detailed Analysis:

Issue 1: Quashing of the Complaint under Section 138 of the Negotiable Instruments Act, 1881
The petitioners, who are directors and the secretary of M/s. Mediaone Global Entertainment Ltd., sought to quash the complaint filed by the respondent under Section 138 of the Negotiable Instruments Act. The complaint alleged that the company defaulted on payments related to a Memorandum of Understanding for the post-production of a Tamil movie. The company issued a cheque for ?3,00,00,000, which was dishonored due to insufficient funds. The respondent issued a demand notice, but the accused provided a reply with false reasons, leading to the filing of the complaint. The learned Judicial Magistrate took cognizance and issued summons to the petitioners.

Issue 2: Determination of the Liability of Directors and Secretary under Section 141 of the Negotiable Instruments Act
The petitioners contended that they were merely directors and not in charge of or responsible for the conduct of the company's business. They argued that there was no specific averment in the complaint to this effect, which is essential to hold them liable. The respondent countered that all petitioners were involved in the day-to-day affairs of the company and were deemed to have committed the offense under Section 141 of the Act.

The court analyzed whether the averment in the complaint that the petitioners were directly involved in the company's affairs was sufficient to make them liable under Section 141. It noted that there is no vicarious liability in criminal law unless explicitly stated by statute. Section 141 requires a specific averment that the accused were in charge of and responsible for the company's business at the time of the offense.

The court referred to several Supreme Court judgments, including S.M.S. Pharmaceuticals Ltd. Vs. Neeta Bhatla, which emphasized the necessity of specific averments in the complaint to satisfy the requirements of Section 141. The court concluded that the complaint lacked specific averments that the petitioners were in charge of and responsible for the company's business. Merely stating that they were involved in the company's affairs was insufficient.

The court further observed that the Judicial Magistrate must consider all materials and apply their mind to form an opinion that a prima facie case exists before issuing process. The absence of specific averments in the complaint led the court to quash the proceedings against the petitioners.

Conclusion:
The court allowed the criminal original petitions and quashed the proceedings in C.C. No. 3082 of 2015 on the file of the learned XIII Metropolitan Magistrate, Egmore, Chennai, against the petitioners. The connected miscellaneous petitions were also closed.