2022 (3) TMI 583 - HC - Indian Laws

Dishonor of Cheque - liability of a Director of a company - vicarious liability - contentions of the applicant are that the impugned order of summoning is a non speaking order - principles of natural justice - HELD THAT - In case of K. SRIKANTH SINGH VERSUS NORTH EAST SECURITIES LTD. 2007 (7) TMI 405 - SUPREME COURT the Hon ble Apex Court has held that for vicarious liability of Director of a company it must be pleaded and shown that the Director was responsible for the conduct of the business of the company at the time of commission of offence. Only being a Director is not enough to cast a criminal liability. Vicarious liability must be pleaded and proved and can not be merely inferred. It is clear from the perusal of the complaint that there is no specific averment that applicant is involved in day-to-day affairs of the company. There is only general allegation that applicant is a Director of the company. The documents filed by the applicant establishes that the applicant was a nominee Director and who has now resigned - thus, it is clear that in absence of specific allegations about the applicant he can not be prosecuted for any offence under section 138 N.I. Act. The learned Magistrate has failed to consider the matter properly. The order of summoning regarding applicant is unjust and illegal and can not be sustained. Application allowed.

Issues Involved:
1. Quashing of the judgment and order dated 2.1.2021 by the Special Judge SC/ST (Prevention of Atrocities) Act.
2. Quashing of the summoning order dated 7.1.2014 by the A.C.J.M. IIIrd, Gautam Budh Nagar.
3. Liability of a Director under Section 138 read with Section 142 of the N.I. Act.
4. Specific averments required in the complaint for vicarious liability under Section 141 of the N.I. Act.

Issue-Wise Detailed Analysis:

1. Quashing of the Judgment and Order Dated 2.1.2021:
The application under Section 482 Cr.P.C. was filed to quash the judgment and order dated 2.1.2021 passed by the Special Judge SC/ST (Prevention of Atrocities) Act, Gautam Budh Nagar in Criminal Revision No. 72 of 2019. The applicant argued that the summoning order was a non-speaking order and lacked specific averments against him. The court found that the learned Magistrate did not properly consider the matter, leading to the judgment being unjust and illegal.

2. Quashing of the Summoning Order Dated 7.1.2014:
The application also sought to quash the summoning order dated 7.1.2014 issued by the A.C.J.M. IIIrd, Gautam Budh Nagar in Complaint Case No. 1927 of 2013. The court noted that the complaint lacked specific averments that the applicant was involved in the day-to-day affairs of the company. The general allegation that the applicant was a Director was insufficient to cast criminal liability.

3. Liability of a Director Under Section 138 Read with Section 142 of the N.I. Act:
The court examined the liability of a Director under Section 138 read with Section 142 of the N.I. Act. It was contended that the applicant was merely a nominee Director and had resigned from the Board of Directors. The applicant did not sign the dishonored cheques nor was he an authorized signatory. The court referred to precedents like K. Srikanth Singh v. North East Securities Limited and DMC Financial Services Limited v. J.N. Sareen, which emphasize that merely being a Director is not sufficient to make a person liable under Section 141 of the N.I. Act. Specific averments are necessary to show that the Director was in charge of and responsible for the conduct of the company's business.

4. Specific Averments Required in the Complaint for Vicarious Liability Under Section 141 of the N.I. Act:
The court referred to the case of S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and another, where the Supreme Court held that it is necessary to specifically aver in the complaint that the person accused was in charge of and responsible for the conduct of the business of the company at the time the offence was committed. The court highlighted that the complaint must contain specific allegations about the role of the Director in the transaction. In the absence of such specific averments, the Director cannot be held liable.

Conclusion:
The court concluded that the complaint lacked specific allegations against the applicant, who was a nominee Director and had resigned. The summoning order was unjust and illegal. Therefore, the application under Section 482 Cr.P.C. was allowed, and the order dated 2.1.2021 in Criminal Revision No. 72 of 2019 and the summoning order dated 7.1.2014 were quashed.

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