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2022 (6) TMI 198 - HC - Indian LawsDishonor of Cheque - insufficiency of funds - vicarious liability - petitioners are not Non-executive Independent Directors of the Company - Whether the petitioners can be proceeded against in the impugned criminal case? - HELD THAT - What is narrated is, accused Nos.2 to 6 are responsible for day-to-day affairs of accused No.1/Company. Accused Nos.2 to 6 are the brain and soul of the Company and are responsible for all the acts and omissions of the Company. With this note the entire narration is against accused Nos.3, 4 and 5 as they are Managing Directors and Joint Managing Directors of the Company. The accused Nos.4 and 5 are also signatories to the cheque - There is no whisper in any of the documents depicting the petitioners to be Non-executive Independent Directors. Therefore, if the haze has to be warded off, it is necessary for the petitioners to participate in the trial and demonstrate that they have no role to play in the day-to-day affairs of the Company and that they are not even aware of the borrowing. It is no doubt settled principle of law that if the accused in a proceeding under Section 138 of the Act who are not signatories to the instrument are hauled into those proceedings and if they are Non-executive Independent Directors, who have no role to play in any affairs of the Company, they cannot be prosecuted. It is in those cases the Apex Court or the constitutional Courts have quashed such proceedings in favour of those Non-executive Independent Directors. The phrase non-executive independent director is not even shown to exist in any of the documents appended by the petitioners. The respondent has demonstrated varied nomenclature of the petitioners in several documents. Therefore, it becomes a matter of trial. In the light of what is held by the Apex Court in N. RANGACHARI VERSUS BHARAT SANCHAR NIGAM LTD 2007 (4) TMI 621 - SUPREME COURT , the complaint clearly narrates that the petitioners were also in-charge of the affairs of the Company, they are the brain and soul of the Company and at the time when they borrowed the loan, the agreement clearly stipulated that with their permission, including others the said loan was borrowed and the cheque was issued and no where the petitioners are described as Non-executive Independent Directors. This being the factual scenario, exercise of jurisdiction under Section 482 of the Cr.P.C. in favour of the petitioners is declined. The contention of the learned counsel for the petitioners that the complaint nor the sworn statement anywhere attributes any role of the petitioners is unacceptable as the complaint or the sworn statement cannot be read splitting hairs as it has to be read as a whole and if it is so read, it does attribute the role played by the petitioners. Petition dismissed.
Issues Involved:
1. Whether the petitioners, as Non-executive Directors, can be proceeded against in the impugned criminal case under Section 138 of the Negotiable Instruments Act, 1881. Detailed Analysis: Issue 1: Whether the petitioners can be proceeded against in the impugned criminal case? The petitioners, accused Nos. 2 and 6, claim to be Non-executive Directors of M/s. Shikhar Microfinance (P) Limited and are challenging the proceedings in C.C.No.6087 of 2021 for an offence under the Negotiable Instruments Act, 1881. The primary contention by the petitioners is that they are not involved in the day-to-day affairs of the Company and are not signatories to the dishonored cheque, which was signed by accused Nos. 4 and 5, the Managing Directors of the Company. They argue that continuing the proceedings against them would be an abuse of the process of law. The respondent refutes this, asserting that the petitioners are regular Directors involved in the Company's daily operations. Several documents were presented to demonstrate that the petitioners are not Non-executive Independent Directors and that their involvement in the Company's affairs is a matter for trial. The Court examined the material on record, including the loan agreement between the respondent and the Company, which indicated that the Board of Directors had approved the borrowing. The agreement and the cheque did not bear the petitioners' signatures, but other documents, such as Form DIR-12 and minutes of the Board meetings, showed the petitioners as active Directors, with one being the Chairman and the other an Independent Director. The complaint and the sworn statement allege that accused Nos. 2 to 6, including the petitioners, are responsible for the Company's day-to-day affairs and are the brain and soul of the Company. The Court noted that there is no mention of the petitioners being Non-executive Independent Directors in any document. The Court emphasized that it is settled law that Non-executive Independent Directors who have no role in the Company's affairs cannot be prosecuted under Section 138 of the Act. However, since the petitioners are not described as such, they must participate in the trial to demonstrate their lack of involvement. The Court referenced the Supreme Court's judgments in ASHUTOSH ASHOK PARASRAMPURIYA v. GHARRKUL INDUSTRIES (PRIVATE) LIMITED AND OTHERS and N.RANGACHARI v. BSNL, which highlight that Directors can be held vicariously liable if it is alleged that they were in charge of and responsible for the Company's conduct. The complaint in this case makes such allegations, and the petitioners are shown to be active in the Company's affairs. Therefore, the Court found no grounds to quash the proceedings under Section 482 of the Cr.P.C. Order:
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