2024 (3) TMI 789 - SC - Indian Laws

Dishonour of Cheque - vicarious liability of the director - appellant was in-charge of day-to-day affairs of the Company or not - HELD THAT - In the case of SMS PHARMACEUTICALS LTD. VERSUS NEETA BHALLA 2005 (9) TMI 304 - SUPREME COURT , this Court was considering the question as to whether it was sufficient to make the person liable for being a director of a company under Section 141 of the Negotiable Instruments Act, 1881. This Court considered the definition of the word director as defined in Section 2(13) of the Companies Act, 1956 - It was held that merely because a person is a director of a company, it is not necessary that he is aware about the day-today functioning of the company. This Court held that there is no universal rule that a director of a company is in charge of its everyday affairs. It was, therefore, necessary, to aver as to how the director of the company was in charge of day-to-day affairs of the company or responsible to the affairs of the company. This Court, however, clarified that the position of a managing director or a joint managing director in a company may be different. It could thus clearly be seen that this Court has held that merely reproducing the words of the section without a clear statement of fact as to how and in what manner a director of the company was responsible for the conduct of the business of the company, would not ipso facto make the director vicariously liable. It can thus be clearly seen that there is no averment to the effect that the present appellant is in-charge of and responsible for the day-to-day affairs of the Company. It is also not the case of the respondent that the appellant is either the Managing Director or the Joint Managing Director of the Company - It can thus clearly be seen that the averments made are not sufficient to invoke the provisions of Section 141 of the N.I. Act qua the appellant. The judgment and order passed by the High Court dated 26th April, 2022 is quashed and set aside - Appeal allowed.

Summary

Issues Involved:
1. Quashing of criminal complaints under Section 482 of the CrPC.
2. Vicarious liability under Section 141 of the Negotiable Instruments Act, 1881.
3. Role and responsibility of a director in a company for criminal liability.

Summary:

The present appeals challenge the common judgment and order dated 26th April, 2022, passed by the High Court of Judicature at Madras, which rejected the prayer for quashing of C.C. Nos. 3151 & 3150 of 2017, related to offences punishable under Section 138 read with Section 142 of the Negotiable Instruments Act, 1881.

Issue 1: Quashing of criminal complaints under Section 482 of the CrPC

The appellant, a director of Fibtel Telecom Solutions, filed petitions under Section 482 of the CrPC for quashing of the criminal complaints against her. The High Court dismissed these petitions, prompting the appellant to file the present appeal. The Supreme Court granted leave and issued a stay on further proceedings against the appellant.

Issue 2: Vicarious liability under Section 141 of the Negotiable Instruments Act, 1881

The Supreme Court examined whether the appellant could be held vicariously liable under Section 141 of the N.I. Act. The Court reiterated that merely being a director does not make one liable; there must be specific averments showing the director's role and responsibility in the conduct of the company's business. The Court cited several precedents, including S.M.S. Pharmaceuticals Ltd. vs Neeta Bhalla and another, emphasizing that a director must be in charge of and responsible for the day-to-day affairs of the company to be held liable.

Issue 3: Role and responsibility of a director in a company for criminal liability

The Supreme Court found that the complaints lacked specific averments against the appellant showing her responsibility for the company's day-to-day affairs. The only allegation was that the appellant and another director had no intention to pay the dues. The Court noted that there was no claim that the appellant was the Managing Director or Joint Managing Director, roles that typically involve responsibility for the company's business conduct.

Conclusion

The Supreme Court allowed the appeals, quashing the High Court's judgment and the proceedings in C.C. Nos. 3151 and 3150 of 2017 against the appellant. The Court held that the averments in the complaints were insufficient to invoke Section 141 of the N.I. Act against the appellant.