2023 (12) TMI 163 - HC - Indian Laws

Dishonour of Cheque - Vicarious liability - petitioner is an Independent Non-Executive Director - petitioner within the ambit of Section 141 of the NI Act or not - HELD THAT - Section 141 NI Act extends criminal liability in case of a company to every person who at the time of the offence, was in charge of and was responsible for the conduct of the business of the company. A company is a juristic person and every person who at the time of commission of offence is in charge and responsible for the conduct of the business of the company is liable for the offence stated to be committed by the company. The criminal liability arises when the offence was committed and not on the basis of merely holding a designation or office in a company. Section 141 of the NI Act mandates that a person is criminally liable when at the time of commission of offence was in charge and responsible for the conduct of the business of the company and person connected with the company may not fall within the ambit of section 141 of the NI Act. The Supreme Court in Siby Thomas V M/s Somany Ceramics Ltd., 2023 (10) TMI 487 - SUPREME COURT observed that it is the primary responsibility of the complainant to make specific averments in the complaint, so as to make the accused vicariously liable. It is the primary responsibility of the complainant to make specific averments in the complaint so as to make the accused vicariously liable. If the basic averment is made in the complaint under section 138 of NI Act that the Director was in charge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed then Magistrate can issue process against such Director. The complaint should specifically spell out how and in what manner the Director was in charge of or was responsible to the accused company for conduct of its business and mere bald statement that he or she was in charge of and was responsible to the company for conduct of its business is not sufficient. Section 141 of the NI Act provides for a constructive liability which is created by a legal fiction - The petitioner as per Form 32 was appointed as Additional Director on 29.06.2001 and resigned as Director with effect from 10.11.2012. Form 32 appears to be a declaration regarding appointment of a director etc. in the company or any change thereto as per section 303(2) of the Companies Act, 2013. It reflects that when the cheque in question was issued, the petitioner was a director in the accused no 1. The petitioner was not shown as Independent Non-Executive Director of the accused no. 1 in Form 32 as pleaded and alleged by the petitioner. It is reflecting that the petitioner was not a party to the execution of Inter Corporate Deposit Agreement, Memorandum of Settlement dated 27.05.2003 and Consent Award dated 21.07.2003 and the cheque in question was not issued under his signature. However the petitioner was appointed as Additional Director and resigned as Director from the accused no. 1 and was one of the Director when the cheque in question was issued, the petitioner cannot be absolved from vicarious liability arising out of cheque in question by pleading that he was not a party to the execution of Inter Corporate Deposit Agreement, Memorandum of Settlement dated 27.05.2003 and Consent Award dated 21.07.2003 and the cheque in question was not issued under his signature. The arguments advanced by learned Senior Counsel on above legal and factual propositions are without any force. There is no legal and factual infirmity in the order dated 11.10.2018 passed by the trial court and impugned order passed by the revisional court - Petition dismissed.

Summary

Issues Involved:
1. Legality of the trial court's order dated 11.10.2018.
2. Legality of the revisional court's order dated 29.01.2019.
3. Vicarious liability of the petitioner under Section 138 and 141 of the NI Act.

Summary:

1. Legality of the trial court's order dated 11.10.2018:
The trial court opined that a prima facie case under section 138 of the NI Act was made out against the accused company and the remaining accused, including the petitioner. The court noted that the accused no. 2, with the consent of the accused no. 3 to 6, issued the cheque in question, which was dishonored due to "funds insufficient." The petitioner, being one of the directors, was in charge of day-to-day affairs and responsible for the conduct of business of the accused no. 1. The petitioner was summoned for offences punishable under section 138 read with section 141 of the NI Act.

2. Legality of the revisional court's order dated 29.01.2019:
The petitioner challenged the trial court's order through Criminal Revision No. 539/2018, which was dismissed by the revisional court. The revisional court observed that the complainant had specifically mentioned the roles of the petitioners in the complaint, stating that they were in charge of and responsible for the conduct of the business of the accused no. 1 company. The court found no illegality or infirmity in the trial court's order.

3. Vicarious liability of the petitioner under Section 138 and 141 of the NI Act:
The petitioner argued that he was an independent Non-Executive Director and not responsible for the day-to-day conduct of the business of the accused no. 1. He claimed that he was not a party to the Inter Corporate Deposit Agreement, Memorandum of Settlement, and Consent Award pursuant to which the cheque in question was issued. The petitioner contended that the complaint lacked specific averments to make him vicariously liable. However, the court noted that the complaint contained sufficient, adequate, and ample averments against the petitioner, making him vicariously liable. The court emphasized that the primary responsibility of the complainant is to make specific averments in the complaint to make the accused vicariously liable. The court held that the petitioner could not be absolved from his liability by merely pleading that he was an independent non-executive director.

Conclusion:
The petition was dismissed, and the court found no legal and factual infirmity in the orders passed by the trial court and the revisional court. The court clarified that none of the observations on factual positions in the judgment should be taken as an opinion on the final merits of the case.