2023 (9) TMI 1083 - HC - Indian Laws

Dishonour of Cheque - issuance of summons - vicarious liability of director of company - petitioner was a director or was handling the day to day affairs of the accused company at the relevant time when the cheques were issued? - HELD THAT - Merely mentioning the designation of the accused person in the company or reproducing the phraseology of the section 141 NIA is not sufficient to attract the guilt under section 141 NIA. The law is no longer res integra that specific allegations/averments have to be made as to how and in what manner the accused alleged to have committed an offence under section 138 NIA, was responsible for, or had a role in the conduct of the business of the company, at the relevant time, when the offence is said to have been committed. Simply because the accused person was a Director or was holding some other office in the company, the vicarious liability cannot be extend to such persons. In SMS PHARMACEUTICALS LTD. VERSUS NEETA BHALLA 2005 (9) TMI 304 - SUPREME COURT , a Three Judge Bench of the Hon ble Apex Court held that to attract vicarious liability under section 141 NIA it is sine qua non that the person accused was in charge of and responsible for the conduct of business of the company at the relevant time when the offence was committed. In SUNITA PALITA OTHERS VERSUS M/S PANCHAMI STONE QUARRY 2022 (8) TMI 55 - SUPREME COURT , wherein the Hon ble Apex Court set aside the order of the High Court rejecting the quashing petition and allowed the said appeal on the ground that the appellants therein were not the Managing Director or Joint managing Director of the accused company and nor were they signatories to the cheques in question. The Court held that the accused persons were merely independent, non-executive directors who had no role to play in the day to day affairs of the accused company. In the present case, the Ld.MM committed an error by summoning the petitioner, who was not even an Additional Director-Non Executive in the accused company at the time when the cheques were issued and thus was not handling the affairs or the conduct of business of the accused company at the relevant time. These facts were also mentioned in the reply on behalf of the petitioner to the legal notices of the complainants. However, Ld. MM ignoring such vital aspects, mechanically proceeded to issue summons to the present petitioner. The summoning orders qua petitioner are hereby set aside. The petitioner is acquitted for the offences alleged under section 138 NIA - Petition allowed.

Summary

Issues Involved:
1. Whether the petitioner was a director or handling the day-to-day affairs of the accused company at the relevant time when the cheques were issued.
2. Whether the petitioner can be held vicariously liable under Section 141 of the Negotiable Instruments Act (NIA).

Summary:

Issue 1: Director or Handling Day-to-Day Affairs

The court first needed to ascertain whether the petitioner was a director or handling the day-to-day affairs of the accused company when the cheques were issued. The petitioner was appointed as an Additional Director Non-Executive on 25.10.2019, whereas the cheques in question were issued on 24.07.2019. The petitioner argued that he was merely a salaried employee who joined the accused company on 01.10.2019, and the liability had already incurred before his appointment as an Additional Director Non-Executive. The court found that the petitioner could not have been responsible for or in charge of the company's day-to-day affairs at the relevant time when the cheques were issued.

Issue 2: Vicarious Liability Under Section 141 NIA

The court examined the provisions under Section 141 NIA, which state that every person in charge of and responsible to the company for its conduct of business at the relevant time will be held guilty. The court emphasized that merely mentioning the designation of the accused person in the company or reproducing the phraseology of Section 141 NIA is not sufficient to attract guilt. Specific allegations/averments must be made to show how and in what manner the accused was responsible for the conduct of the business at the relevant time. The court referred to several judgments, including S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, K.K. Ahuja v. V.K. Vora, and National Small Industries Corp. Ltd. v. Harmeet Singh Paintal, to reiterate that vicarious liability can only be fastened on those who were in charge of and responsible for the conduct of the business at the time of the offence.

The court found that the petitioner was neither a signatory to the cheques nor responsible for the day-to-day affairs of the company when the cheques were issued. The complaint did not ascribe any specific role to the petitioner to attract vicarious liability under Section 141 NIA. The court held that continuing with the criminal proceedings against the petitioner would be an abuse of the process of the courts.

In view of the above, the summoning orders against the petitioner were set aside, and the petitioner was acquitted of the offences alleged under Section 138 NIA. The petitions were allowed, and the pending applications were disposed of.