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2024 (7) TMI 535 - HC - Indian LawsDishonour of Cheque - vicarious liability of director u/s 141 of NI Act - petitioner had resigned from the Directorship of the company or not - HELD THAT - The law as regards the liability of a Director for an offence under Section 138 NI Act committed by a company is no longer res integra. In S.M.S Pharmaceuticals Ltd. v. Neeta Bhalla Anr. 2005 (9) TMI 304 - SUPREME COURT , the Supreme Court while dealing with the aforesaid, discussed in detail the role of a Director in a company as well as their liability. Section 141 being a penal provision, has to be strictly construed. Resultantly, not every Director can be brought into the fold of the said provision merely due to the aforesaid reason. It is only those Directors who were in-charge of the day-to-day affairs and responsible for the conduct of the business of the company can be held liable for the offence under Section 138 NI Act. The word in-charge of a business has been interpreted to mean a person having overall control of the day-to-day business of the company. Thus, for a Director to be vicariously liable, the complainant has to show that the said Director was indeed associated with the day-to-day affairs and management of the business. A Director cannot be arrayed as an accused on the basis of a cursory statement or vague averment. What would be appropriate pleadings/averments would be determined on a case-to-case basis. The petitioner has denied liability by arguing that the complaint is bereft of the necessary averments against the petitioner, to bring her into the net of Section 141 NI Act. However, upon a reading of the criminal complaint placed on record, this Court is of the considered opinion that the complaint contains the necessary averments in line with Section 141 NI Act inasmuch as it has been stated that the petitioner alongwith the other Directors was jointly and severally responsible and in-charge for the conduct of the business as well as in control of the management of the affairs of the accused company. Petition dismissed.
Issues:
Quashing of Complaint Case under Section 482 Cr.P.C. Director's liability under Section 138 NI Act Vicarious liability of Directors under Section 141 NI Act Legal position regarding quashing of complaints under Section 138 NI Act Necessary averments against Directors in complaints Quashing of Complaint Case under Section 482 Cr.P.C.: The petitioner sought quashing of Complaint Case No. 8140/2019 under Section 138 NI Act. The complaint alleged default by the accused company in repaying a term loan investment, leading to a dishonored cheque. The petitioner, a Director, argued lack of specific averments against her and her resignation from the Directorship. However, the Court found the complaint contained necessary averments under Section 141 NI Act, holding the petitioner liable as a Director at the time of the offense. Director's Liability under Section 138 NI Act: The law on a Director's liability for offenses under Section 138 NI Act was discussed, emphasizing that liability arises from being in charge of the company's business at the relevant time. Mere designation as a Director is not sufficient for liability. The Supreme Court's judgments reiterated the need for specific averments to establish liability under Section 141 NI Act, focusing on the role played in the company's affairs. Vicarious Liability of Directors under Section 141 NI Act: Section 141 NI Act imposes vicarious liability on Directors for company offenses. Directors must be in charge of and responsible for the company's business to be held liable. The complainant must show the Director's association with the day-to-day affairs for vicarious liability. The provision is strictly construed, and liability is based on actual involvement in the company's management, not just the title of Director. Legal Position Regarding Quashing of Complaints under Section 138 NI Act: The Supreme Court's rulings clarified the process for quashing complaints under Section 138 NI Act against Directors. Specific averments are crucial to establish vicarious liability. Directors seeking quashing must provide evidence showing lack of involvement in the offense to avoid trial. The complainant's responsibility is to make detailed averments to establish vicarious liability, and Directors must prove lack of knowledge or due diligence to prevent the offense. Necessary Averments Against Directors in Complaints: The Court emphasized the importance of specific averments in complaints to bring Directors under the purview of Section 141 NI Act. The complaint must demonstrate the Director's involvement in the company's affairs at the time of the offense. The petitioner's argument of lack of necessary averments was dismissed as the complaint sufficiently established her role and responsibility as a Director during the offense. This detailed analysis covers the issues of quashing the complaint, Director's liability under the NI Act, vicarious liability of Directors, legal position on quashing complaints, and necessary averments against Directors. The judgment underscores the importance of specific allegations to establish liability and the need for Directors to prove lack of involvement to seek quashing.
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