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TMI Blog2024 (4) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... y a company, has been extended by a deeming fiction on the person in-charge of or holding an office, making them equally liable for the offence. The said provision, however, cannot extend to other corporate entities or group of companies. This Court in Yashovardhan Birla v. CECIL Webber Engineering Ltd., [ 2023 (4) TMI 706 - DELHI HIGH COURT ], has reiterated that large business conglomerates may have a number of companies under them, which may be ultimately managed by a particular family or group of investors, but to run the day-to-day affairs, officers and professionals are appointed in such companies. In such cases, the head of the Company cannot be made liable and taken into the purview of Section 141 of the NI Act, doing so would unfairly and unnecessarily expand the provisions of vicarious liability under the NI Act. Thus, the respondent no. 3 could not have been proceeded against only on the allegation that it is a group company of the accused no. 1, which is the drawer of the cheque in question. Liability of common Directors of the group, namely, Right Choice Group of Companies - HELD THAT:- The petitioner has placed no document on record to show that the respondent nos. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is further contended that the respondent nos. 1 and 2, along with others, who have been arrayed as accused nos. 2 and 3 in the complaint, are the common Directors of the Group, namely, Right Choice Group of Companies, and are responsible for the day-to-day affairs of accused no. 1 and respondent no. 3 herein. 3. It is further contended that respondent nos. 1 and 2, along with accused nos. 2 and 3, are the ones who approached different investors for their business and directly dealt with them regarding all transactions between the Right Choice Group of Companies and such investors. 4. It is further alleged that the respondent nos. 1 and 2, along with accused nos. 2 and 3 in the complaint, approached the petitioner herein with various investment ideas and brochures mentioning the schemes and projects of accused no. 1 and respondent no. 3, so as to lure the petitioner to invest in the same. 5. It is further alleged that in 2014, the accused no. 2, representing himself to be the Director of Right Choice Group of Companies, personally approached petitioner for investment(s) in the aforesaid entities, assuring him of high rates of return on investments. 6. It is stated that petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noured. 11. The petitioner asserts that being aggrieved of the aforesaid conduct, he initiated criminal complaints against the accused with the Abu Dhabi Police for the dishonour of the ten cheques. The Abu Dhabi Courts of First Instance, vide its order dated 26.12.2016 passed in Case No. 13267/2016, convicted the accused no. 3 and sentenced him with imprisonment of two years for the first set of five cheques totalling AED 295,089/-. The said Court, vide its order dated 27.03.2017 passed in Case No. 1918/2017, convicted accused no. 3 and awarded a sentence of imprisonment of three years for the second set of five cheques totalling AED 685,625/-. It is stated that the accused are not travelling to Dubai out of fear of being arrested. 12. It is stated that the petitioner thereafter issued a legal notice dated 15.03.2017 through his counsel in Abu Dhabi. The said notice was addressed to the accused at its Dubai office as also the India office and was duly served on the India office on 25.03.2017. An e-mail dated 19.04.2017 was also addressed to all the Directors. It is stated that in response to the above notices, accused no. 3 contacted the counsel of the petitioner and assured of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Bombay in Amit H. Jhaveri and Ors. v. Bank of Baroda a Banking Company and Ors., 2010 SCC OnLine Bom 1559 , he submits that the court must penetrate the economic actualities beneath the legal exterior, especially in instances of economic offences. He submits that the Brochure floated to attract investments, copy of email communications, and other evidence prove linkage between the respondent no. 3 and the accused no. 1 companies. They prove that the respondent no. 3 is the main beneficiary of the fraud. 18. He submits that there is an underlying principal-agent relationship between the respondent no. 3 and the accused no. 1. Placing reliance on Varsha Engineering Pvt. Ltd. v. Vijay Traders, AIR 1983 Guj 166 , he submits that the contract of agency can also manifest as an implied one and can make the principal liable to be sued by third parties. 19. The learned counsel for the petitioner submits that the respondent nos. 1 and 2, being in-charge of supervising the operations of the Right Choice Group of Companies, are legally accountable for the conduct of these companies. Placing reliance on S.P. Mani and Mohan Diary v. Dr. Snehalatha Elangovan, (2023) 10 SCC 685 , he submits t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntral Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter. (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation . For the purposes of this section, (a) company means any body corporate and includes a firm or other association of individuals; and (b) director , in relation to a firm, means a partner in the firm. 25. A reading of the above would show that in case the offence under Section 138 of the NI Act is committed by a Company, Section 141 of the NI Act creates a vicarious liability on the persons who are in charge of and responsible for the day-to-day affairs of the Company o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge of and responsible to the company for the conduct of its business is immaterial. 28. While the essential element for implicating a person under sub-section (1) is his or her being in charge of and responsible to the company in the conduct of its business at the time of commission of the offence, the emphasis in sub-section (2) is upon the holding of an office and consent, connivance or negligence of such officer irrespective of his or her being or not being actually in charge of and responsible to the company in the conduct of its business. Thus, the important and distinguishing feature in sub-section (1) is the control of a responsible person over the affairs of the company rather than his holding of an office or his designation, while the liability under sub-section (2) arises out of holding an office and consent, connivance or neglect. 29. While all the persons covered by sub-section (1) and sub-section (2) are liable to be proceeded against and also punished upon the proof of their being either in charge of and responsible to the company in the conduct of its business or of their holding of the office and having been guilty of consent, connivance or neglect in the matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court culled out the principles that govern the liability of persons covered under Section 141 of the NI Act, as under: 42. Thus, the legal principles discernible from the aforesaid decision of this Court may be summarised as under: 42.1. Vicarious liability can be fastened on those who are in-charge of and responsible to the company or firm for the conduct of its business. For the purpose of Section 141, the firm comes within the ambit of a company; 42.2. It is not necessary to reproduce the language of Section 141 verbatim in the complaint since the complaint is required to be read as a whole; 42.3. If the substance of the allegations made in the complaint fulfils the requirements of Section 141, the complaint has to proceed in regard to the law. 42.4. In construing a complaint a hyper-technical approach should not be adopted so as to quash the same. 42.5. The laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions resulting in the enactment of Sections 138 and 141, respectively, should be kept in mind by the Court concerned. 42.6. These provisions create a statutory presumption of dishonesty exposing a person to cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le is something that is peculiarly within their knowledge and it is for them to establish at the trial to show that at the relevant time they were not in charge of the affairs of the company or the firm. 58.3. Needless to say, the final judgement and order would depend on the evidence adduced. Criminal liability is attracted only on those, who at the time of commission of the offence, were in charge of and were responsible for the conduct of the business of the firm. But vicarious criminal liability can be inferred against the partners of a firm when it is specifically averred in the complaint about the status of the partners qua the firm. This would make them liable to face the prosecution but it does not lead to automatic conviction. Hence, they are not adversely prejudiced if they are eventually found to be not guilty, as a necessary consequence thereof would be acquittal. 58.4. If any Director wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he/she is really not concerned with the issuance of the cheque, he/she must in order to persuade the High Court to quash the process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he complaint that the accused no. 1 is the sales and marketing wing of respondent no. 3 or is a branch established by respondent no. 3, no material has been placed on record by the petitioner to prove the said assertion. 33. On the other hand, from the material placed on record by the petitioner itself, it is established that the accused no. 1 and the respondent no. 3 are separate legal entities; one registered in Dubai and the other registered in India. The Brochure itself states that they are separate companies though part of the same group. 34. Section 141 of the NI Act is neither intended nor extends the vicarious liability on the group companies. It is intended to create vicarious liability only on the persons and officers who are either in-charge of the company, which is the main accused, or have connived or are negligent, resulting in the accused company committing the offence under Section 138 of the NI Act. Section 141 of the NI Act, therefore, cannot extend to the group companies. 35. Section 138 of the NI Act, in fact, creates liability only on the drawer of the cheque . As it creates a criminal liability, there is no scope of lifting of the corporate veil. It is only be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... independent advice or oversight of the functioning of the company. Even the role of Chairman / Chairperson is not typically of an executive nature since the Chairperson presides over the general meetings or of the functioning of the company and guides its business policies and need not interfere in the day-to-day affairs of the company. Chairperson of large business conglomerates are in fact even further removed from the minutiae of everyday operations of the company and distant from the micro-management which is required to be done by the executive directors and officers of the company. Needless to say, this has to be assessed in context of the peculiar facts of each case. xxx 26. Creeping up an escalating liability to Chairpersons of large conglomerates/companies for cheques issued in day-to-day affairs of the business of a company would unfairly and unnecessarily expand the provisions of vicarious liability under the provisions of the Negotiable Instruments Act. Particularly, since no prejudice is caused to the complainant in this case as the signatory of the cheque and admittedly the Managing Director of the accused company is already arrayed as A-2 and is continued to be part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lainant believe that the said cheques would be honoured upon presentation. That the said cheques were issued by the accused No. 3 on clear and express instructions of Accused No. 2, 4 and 5 knowing well, that the account maintained by it does not have the requisite balance to honour the payment for which the cheques were issued. Thus, the accused persons have cheated the complainant and caused wrongful losses to the Complainant and wrongful gains to itself. Copy of the documents evidencing the link of the accused entities with each other are annexed herewith as ANNEXURE C-13 (COLLY). 40. The learned ASJ in the Impugned Order records that it is only accused nos. 2 and 3 who are the Directors of the accused nos. 1. It held that there is no document to show that respondent no. 1 and 2 are the Directors of accused no. 1, that is, Right Choice Marketing Solution JLT. The learned ASJ held as follows: 15 There is nothing on the record that revisionist No. 3 and accused no. 1 are the same entity. There is nothing on the record that revisionist no. 1 and 2 are the Directors of accused no. 1. There is nothing on record that revisionists no. 1 and 2 were in control or incharge or responsible ..... X X X X Extracts X X X X X X X X Extracts X X X X
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