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TMI Blog2021 (12) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... agistrate, Hyderabad under Section 138 of Negotiable Instruments Act (for short NI Act ) read with Section 141 and 142 of the Act stating that A1 was a Jewellery shop, by name, SV Jewellers Private Limited and A2 was its Managing Director and A3 to A9 were Directors of A1 company. In the month of June, 2010, A2 to A9 visited the complainant s Jewellery shop at Abids, Hyderabad and selected various jewellery items and assured the complainant that they would be going on to be their permanent customers and would place orders on various occasions like marriage seasons and festivals like Akshaya Trithiya and purchased jewellery worth ₹ 96,95,808/- and issued various cheques pertaining to Axis Bank, Kukatpally, assuring that the cheques would be honoured on its presentation. The complainant presented the cheques but the said cheques were returned by the drawee bank with an endorsement INSUFFICIENT FUNDS . The complainant issued legal notices dated 28.07.2010 to A1 to A9 through RPAD but the said legal notice sent to A1 was returned as not claimed. The notices sent to A2 to A9 were received on 30.07.2010. Inspite of receipt of legal notices as the petitioners failed to pay the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of A1 company, but no specific role was alleged as to how they were responsible for the conduct of the day to day business of the company. It was mentioned in the complaint that A5 to A9 selected various women jewellery items like necklaces, earrings, bangles, nose rings and jewellery worn by the bride and had shown keen interest in selection process of jewellery and appreciated various designs and workmanship. But the said facts were not relevant to prosecute them for the offence under Section 138 read with 141 of NI Act. The cheques would disclose that they were issued by A2 in the capacity of the Managing Director of the A1 company. They were not signed by the petitioners. 7. It was contended by the learned counsel for the petitioners that the petitioners resigned to the post of Director and had filed Form No.32 before the Registrar of Companies with effect from 02.07.2014. But as they were continuing as Directors in the company by the date of issuing the alleged cheques, the said point is considered not material to decide the issue. 8. The Hon ble Apex Court in SMS Pharmaceuticals Ltd. v. Neeta Bhalla and Ors. (2007) 4 SCC 70 , held that: It is necessary to spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of merely holding a designation or office in a company. Conversely, a person not holding any office or designation in a company may be liable if he satisfies the main requirement of being in charge of and responsible for conduct of business of a company at the relevant time. Liability depends on the role one plays in the affairs of a company and not on designation or status. If being a Director or Manager or Secretary was enough to cast criminal liability, the section would have said so. Instead of every person, the section would have said every Director, Manager or Secretary in a company is liable... etc. The Legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action. The liability arises on account of conduct, act or omission on the part of a person and not merely on account of holding an office or a position in a company. Therefore, in order to bring a case within Section 141 of the Act, the complaint must disclose the necessary facts which m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position under section 141 of the Act can be summarized thus: (i) If the accused is the Managing Director or a Joint Managing Director, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company, for the conduct of the business of the company. It is sufficient if an averment is made that the accused was the Managing Director or Joint Managing Director at the relevant time. This is because the prefix `Managing' to the word `Director' makes it clear that they were in charge of and are responsible to the company, for the conduct of the business of the company. (ii)In the case of a director or an officer of the company who signed the cheque on behalf of the company, there is no need to make a specific averment that he was in charge of and was responsible to the company, for the conduct of the business of the company or make any specific allegation about consent, connivance or negligence. The very fact that the dishonoured cheque was signed by him on behalf of the company, would give rise to responsibility under sub-section (2) of Section 141. (iii) In the case of a Director, Secretary or Manager (as defined in Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uct of business of the company, as well as the company, liable for the offence. It is true that the proviso to sub- section enables certain persons to prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of the offence. It is true that the proviso to sub-section (1) of Section 141 of the NI Act enables certain persons to prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of the offence. The liability under Section 141 of the N.I. Act is sought to be fastened vicariously on a person connected with the company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. 9. Hence considering the above citations and considering the fact that the petitioners A5, A7, A8 and A9 were not the drawers of the cheques and had not signed the same and no specific averments were made in the complaint against them showing the role played by them as to how they were responsible for the conduct of day to day business of the company, it is considered fit to quash the proceedings ag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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