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TMI Blog2024 (9) TMI 1242X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in NATIONAL SMALL INDUSTRIES CORPN. LTD. VERSUS HARMEET SINGH PAINTAL [ 2010 (2) TMI 590 - SUPREME COURT] made the observations with regard to fastening vicarious liability on Directors who are not in charge of day-to-day affairs of the company. Coming to the facts of the present case, a reading of the complaint would show that the same is bereft of any specific allegations as to how being an Additional Independent Non-Executive Director, the petitioner (arrayed as accused No.4 in the complaint) was incharge of day-to-day affairs and conduct of the business of the accused company. The complaint itself is accompanied by the Master Data of the company, which did not reflect the name of the petitioner as a Director. Even if the Annual Report for the Financial Year 2020-21 of respondent No. 3 is to be considered, it brings to the notice the fact that during all the Nine (9) Board Meetings held during the Financial Year 2020-21 and of the Annual General Meeting held on 31.12.2020, none of it were attended by the petitioner which goes to show that he was not involved in day-to-day affairs of the accused Company. Thus, it is the conceded case of the complainant that the petitioner was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y respondent No. 2 with the condition that there will be an interest on the loan amount @ 15 % per annum. That against the above stated and in discharge of their liability respondent Nos. 4, 5 and the present petitioner handed over the following cheques to respondent No. 2/Company :- Cheque Nos. Dated Amount 001599 21.03.2022 Rs. 1,96,875/- 001600 21.04.2022 Rs. 1,96,875/- 001601 21.04.2022 Rs. 1,75,00,000/- 4. However, upon presentment, the abovementioned cheques got dishonoured and the same were returned unpaid vide return memos dated 25.04.2022, 22.04.2022 and 22.04.2022 respectively, with the remarks Account Blocked . Subsequently, a legal notice dated 02.05.2022 was issued to the petitioner and respondent Nos. 3 to 5. However, upon failure to pay the amount under the subject cheques, the subject criminal complaint under Section 138 NI Act came to be filed and the learned Trial Court issued summons against the petitioner and other accused persons vide order dated 27.09.2022. 5. Learned counsel for the petitioner submits that the Trial Court has passed the summoning order in a mechanical manner without appreciating the facts and applying the law on the subject. It is submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard learned counsels for the parties and have also perused the material placed on record. 9. The criminal complaint has been filed under Section 138 read with Section 141 of the NI Act. The petitioner has been impleaded in the capacity of Director of the accused company. The present petition is accompanied by Form No. DIR-11 and DIR-12. The said documents i.e. DIR-11 and DIR-12 indicate that the petitioner was appointed as an Additional Independent Non-Executive Director on 26.02.2020 and that he resigned on 08.12.2021. 10. The above would show that while the cheques were presented for encashment and dishonoured on 22.04.2022, the petitioner had resigned from his position as Additional Independent Non-Executive Director four months prior i.e., on 08.12.2021. 11. The issue whether requisite allegations are to be made against Directors and more particularly against the Directors who are Additional Independent Non-Executive, has come up before the Supreme Court in a catena of decisions. In Pooja Ravinder Devidasani (Supra), the Supreme Court, while following the ratio of the decision in National Small Industries Corp. Ltd. v. Harmeet Singh Paintal reported as (2010) 3 SCC 330 , made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any without anything more is not a sufficient or adequate fulfilment of the requirements under Section 141. xxx 12. Most recently, the Supreme Court in Sunita Palita v. Panchami Stone Quarry reported as (2022) 10 SCC 152, observed as under : - xxx 42. Liability depends on the role one plays in the affairs of a company and not on designation or status alone as held by this Court in S.M.S. Pharmaceuticals. The materials on record clearly show that these appellants were independent, non-executive Directors of the company. As held by this Court in Pooja Ravinder Devidasani v. State of Maharashtra , a non-executive Director is not involved in the day-to-day affairs of the company or in the running of its business. Such Director is in no way responsible for the day-to-day running of the accused Company. Moreover, when a complaint is filed against a Director of the company, who is not the signatory of the dishonoured cheque, specific averments have to be made in the pleadings to substantiate the contention in the complaint, that such Director was in charge of and responsible for conduct of the business of the Company or the Company, unless such Director is the designated Managing Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrol and direction of the Board in question. A Whole-time Director includes a Director who is in the whole-time employment of the company, devotes his whole-time of working hours to the company in question and has a significant personal interest in the company as his source of income. Every public company and private company, which is a subsidiary of a public company, having a share capital of more than Five Crore rupees (Rs. 5,00,00,000/-) must have a Managing or Whole-time Director or a Manager. Further classification of Directors Based on the circumstances surrounding their appointment, the Companies Act recognizes the following further types of Directors: 1. First Directors: Subject to any regulations in the Articles of a company, the subscribers to the Memorandum of Association, or the company's charter or constitution ( Memorandum ), shall be deemed to be the Directors of the company, until such time when Directors are duly appointed in the annual general meeting ( AGM ). 2. Casual vacancies: Where a Director appointed at the AGM vacates office before his or her term of office expires in the normal course, the resulting vacancy may, subject to the Articles, be filled by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons or banks, or by the Central Government in case of oppression or mismanagement. The extent of a nominee Director's rights and the scope of supervision by the shareholders, is contained in the contract that enables such appointments, or (as appropriate) the relevant statutes applicable to such public financial institution or bank. However, nominee Directors must be particularly careful not to act only in the interests of their nominators but must act in the best interests of the company and its shareholders as a whole. The fixing of liabilities on nominee Directors in India does not turn on the circumstances of their appointment or, indeed, who nominated them as Directors. Chapter 4 and Chapter 5 that follow set out certain duties and liabilities that apply to, or can be affixed on, Directors in general. Whether nominee Directors are required by law to discharge such duties or bear such liabilities will depend on the application of the legal provisions in question, the fiduciary duties involved and whether such nominee Director is to be regarded as being in control or in charge of the company and its activities. This determination ultimately turns on the specific facts and ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Director; b. is not related to promoters or persons occupying management positions at the board level or at one level below the board; c. has not been an executive of the company in the immediately preceding three (3) financial years; d. is not a partner or an executive or was not a partner or an executive during the preceding three (3) years, of any of the following: i. the statutory audit firm or the internal audit firm that is associated with the company, and ii. the legal firms and consulting firms that have a material association with the company; e. is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect the independence of the Director; or f. he is not a substantial shareholder of the company, i.e, owning two percent (2%) or more of the block of voting shares; and g. he is not less than twenty-one (21) years of age. Nominee directors appointed by an institution that has invested in, or lent money to, the company are also treated as independent Directors. 15. Coming to the facts of the present case, a reading of the complaint would show that the same is bereft of any specific allegations as to how being an Additional Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X
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