2007 (2) TMI 311 - SC - Companies Law

Director not vicariously liable under s.141 NI Act where mere presence on resolution doesn't prove responsibility for company conduct

The SC held the director was not vicariously liable under s.141 NI Act because liability is assessed on the offence date and mere presence on a resolution ... Vicarious liability of directors under Section 141 - conduct of the business of the company - Whether for purposes of section 141 of the Negotiable Instruments Act, 1881, it is sufficient if the substance of the allegation read as a whole fulfil the requirement of the said section and it is not necessary to specifically state in the complaint that the person accused was incharge of, or responsible for, the conduct of the business of the company? Held that:- The liability of a Director must be determined on the date on which the offence is committed. Only because Respondent No. 1 herein was a party to a purported resolution dated 15-2-1995 by itself does not lead to an inference that she was actively associated with the management of the affairs of the Company. This Court in this case has categorically held that there may be a large number of Directors but some of them may not associate themselves in the management of the day to day affairs of the Company and, thus, are not responsible for conduct of the business of the Company. The averments must state that the person who is vicariously liable for commission of the offence of the Company both was incharge of and was responsible for the conduct of the business of the Company. Requirements laid down therein must be read conjointly and not disjunctively. When a legal fiction is raised, the ingredients therefor must be satisfied. If the complaint petition is read in its entirety, the same would show that the only person who was actively associated in the matter of obtaining loan, signing cheques and other affairs of the company which would lead to commission of the alleged offence was the accused No. 2. By reason of the purported resolution dated 15-2-1995, whereupon strong reliance has been placed by Mr. Mishra, only the accused No. 2 was authorized to do certain acts on behalf of the Company. The cheques were issued on 15-8-1996, i.e., after a period of 17 months from the date of the said resolution. As is evident from the averments made in the complaint petition, the cheques represented the amount of interest payable for a total period of 15 days only calculated at the rate of 25 per cent per annum on the amount of deposit, viz., rupees two crores. The High Court has gone into the matter at some length. The High Court found that the resolution by itself did not constitute an offence even assuming that the same bore the signature of Respondent No. 1 (although the genuineness thereof was disputed). Thus on a plain reading of the averments made in the complaint petition, we are satisfied that the statutory requirements as contemplated under section 141 of the Act were not satisfied. Issues Involved:1. Applicability of Section 141 of the Negotiable Instruments Act, 1881.2. Vicarious liability of directors under Section 141.3. Specific averments required in a complaint under Section 141.4. Maintainability of a second application under Section 482 of the Code of Criminal Procedure.Issue-wise Detailed Analysis:1. Applicability of Section 141 of the Negotiable Instruments Act, 1881:The case revolves around the applicability of Section 141 of the Negotiable Instruments Act, which deals with offences by companies. The appellant company filed a complaint alleging that the respondent company issued cheques that were dishonored due to insufficient funds. The complaint petition included allegations against the directors, including Respondent No. 1, stating that they were actively involved in the management of the company.2. Vicarious Liability of Directors under Section 141:The court examined whether the directors, including Respondent No. 1, could be held vicariously liable for the dishonor of cheques issued by the company. The court referred to the precedent set in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [2005] 8 SCC 891, which clarified that merely being a director is not sufficient to make a person liable under Section 141. The person must be in charge of and responsible for the conduct of the business of the company at the relevant time.3. Specific Averments Required in a Complaint under Section 141:The court emphasized that for a complaint to attract the provisions of Section 141, it must specifically aver that the accused was in charge of and responsible for the conduct of the business of the company at the time the offence was committed. The complaint must disclose necessary facts to make a person liable. In this case, the court found that the allegations against Respondent No. 1 were vague and did not satisfy the requirements of Section 141. The complaint did not provide sufficient details to establish that Respondent No. 1 was responsible for the conduct of the company's business at the relevant time.4. Maintainability of a Second Application under Section 482 of the Code of Criminal Procedure:The court addressed the issue of whether a second application under Section 482 of the Code of Criminal Procedure was maintainable. The appellant argued that the second application was not maintainable as it would amount to a review of the earlier order, which is barred under Section 362 of the Code. However, the court noted that the High Court had given liberty to Respondent No. 1 to agitate the matter again. The court also referred to the precedent in Suptd. Remembrancer of Legal Affairs v. Mohan Singh [1975] SCC 706, which held that a second application under Section 561A of the Code of Criminal Procedure would be maintainable when there is a changed set of circumstances.Conclusion:The Supreme Court upheld the High Court's judgment, concluding that the statutory requirements under Section 141 of the Negotiable Instruments Act were not satisfied in the complaint against Respondent No. 1. The court found no error in the High Court's decision and dismissed the appeal with costs. The court emphasized the necessity of specific averments in a complaint to establish vicarious liability and clarified the maintainability of a second application under Section 482 of the Code of Criminal Procedure.