2022 (6) TMI 1032 - HC - Indian Laws

Dishonor of Cheque - vicarious liability of Director - Section 141 of the Negotiable Instruments Act, 1881 - HELD THAT - On perusing the complaint, this Court finds that the complainant has made specific averment that the Directors participated in the meeting to negotiate the terms of contract and at every stage, they enquired about the project and insisted to complete it within the scheduled time. The petitioners admit that the cheque was drawn by them and handed over to the respondent-complainant. However, they contend that the cheques were issued only as security for the balance amount, which is liable to pay after certification. If that is so, the petitioners ought not to have given those cheques with specific dates and amounts without certification. After presentation of the cheques and institution of the complaint, the petitioners herein by rely upon the report of auditor dated 16.05.2018 who was apparently appointed by the petitioners herein try to make out the defence - From the dates and events, admittedly the cheques were drawn and handed over to the respondent much prior to the appointment of the so called independent Auditor and receipt of his report. After issuing the cheque for specific amount with date, the petitioners are attempt to make out a case that the cheques were not issued for the liability but only as a security and the liability are facts to be tested in trial much less than the cheque amount and not summarily by exercising Section 482 of Cr.P.C. This Court is of the view that the petitioners herein are liable to face the trial and prove their innocence. The power of the High Court under Section 482 of Cr.P.C., to quash the complaint cannot be exercised, in the case, where the complaint speaks about the participation of the accused persons and issuance of cheques for enforceable debt - Petition dismissed.

Summary

Issues involved:
1. Quashing of a complaint under Section 138 of the Negotiable Instrument Act filed against a company and its directors.
2. Determination of liability of non-executive directors in a company for bounced cheques issued as security.

Issue 1: The primary issue in this case was the quashing of a complaint filed under Section 138 of the Negotiable Instrument Act against a company and its directors. The complaint alleged that the company issued cheques that were subsequently dishonored, leading to a legal dispute. The complainant contended that the directors of the company were actively involved in the affairs of the company and should be held liable under Section 138.

Analysis: The complainant alleged that the company approached them for interior work, issued purchase orders, and issued cheques as payment. However, the cheques were dishonored, leading to the complaint. The company argued that the cheques were issued as security and not for enforceable debt. The court referred to previous judgments, emphasizing that specific averments are required to establish vicarious liability of directors under Section 138. The court noted that the complainant made specific allegations against the directors' involvement in the business transactions, indicating their active participation. It was held that the directors could not escape liability merely by claiming non-involvement in day-to-day affairs, as this disputed fact needed to be proven in trial.

Issue 2: Another important issue was the determination of liability of non-executive directors in a company for bounced cheques issued as security. The company's non-executive directors argued that they were not directly involved in the company's operations and should not be held liable for the bounced cheques.

Analysis: The non-executive directors contended that they were not in charge of day-to-day affairs and were not signatories to the cheques. However, the court emphasized that the complainant's specific averments regarding the directors' active participation in the transactions raised a disputed fact that needed to be resolved in trial. The court noted that the power to quash a complaint under Section 138 should be sparingly exercised and not based on mere assertions. It was held that the non-executive directors could not escape trial solely by claiming lack of involvement, as their liability needed to be established through evidence.

In conclusion, the court dismissed the petition to quash the complaint, emphasizing that the accused individuals, including non-executive directors, must face trial to prove their innocence. The court highlighted the importance of specific averments and evidence in establishing liability under Section 138 of the Negotiable Instrument Act, indicating that disputed facts should be resolved through trial rather than summary dismissal.