2010 (12) TMI 1067 - HC - Companies Law

Director not liable under Section 141 as no evidence of responsibility. Clear allegations needed for vicarious liability.

Mrs. Nirmal Ahluvalia Versus Mrs. O. Meenakshi

The court held that the petitioner, as a director, could not be held liable under Section 141 of the Negotiable Instruments Act as there were no specific ... Whether the petitioner, who has been arrayed as A3 in a private complaint given under section 138 read with section 141 of the Negotiable Instruments Act, 1881, was in charge of and was responsible for the conduct of the business of the company? Held that:- When there is no liability against the petitioner as a director of a company, no purpose would be served to allow the proceedings to continue even at the stage of arguments. The petitioner is an aged lady, who resides at New Delhi. The records would show that non-bailable warrant was issued for her non-appearance. Therefore, I am satisfied that the continuance of the proceedings is only harassment to the petitioner who cannot be fastened with liability under section 141 of the Act. It is also pertinent to note that the respondent-complainant can proceed against the company and the director who was actually in charge of and responsible for the conduct of the business of the company. Therefore, no prejudice or loss would be caused to the complainant if the proceedings are quashed as far as the petitioner is concerned. Otherwise, the continuance of which will be an abuse of process of court even if it is for one more day. Appeal allowed. Issues Involved:1. Whether the petitioner, as a director, was in charge of and responsible for the conduct of the business of the company under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881.2. Whether the complaint and evidence sufficiently averred and proved the petitioner's responsibility for the company's business.3. Whether the proceedings against the petitioner should be quashed.Issue-wise Detailed Analysis:1. Responsibility of the Petitioner under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881:The core issue revolves around whether the petitioner, a director of the company, was in charge of and responsible for the conduct of the business of the company. The petitioner contended that she was not responsible for the day-to-day business operations, and the complainant failed to specifically aver this responsibility in the complaint. Section 141 of the Negotiable Instruments Act stipulates that for a person to be held liable, it must be averred that they were in charge of and responsible for the conduct of the business at the time the offence was committed. The court emphasized that merely holding the position of a director does not automatically entail liability under Section 141.2. Sufficiency of Averments and Evidence:The petitioner argued that the complaint lacked specific allegations against her, merely stating that the second and third accused were in charge of the company's day-to-day affairs. The court referred to the Supreme Court's decision in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, which mandates specific averments in the complaint about the accused's responsibility for the company's business. The court noted that the complaint and the evidence (PW1's testimony) did not contain sufficient averments or proof against the petitioner. The court reiterated that liability under Section 141 requires clear and specific allegations, which were absent in this case.3. Quashing of Proceedings:The court considered whether to quash the proceedings against the petitioner. The respondent argued that the petitioner had not approached the court with clean hands and that the proceedings had already progressed significantly. However, the court found that continuing the proceedings against the petitioner, who was not proven to be responsible for the company's business, would be an abuse of the court's process. The court highlighted that the complainant could still proceed against the company and the director who was actually in charge of the business. Given the lack of specific averments and evidence against the petitioner, the court decided to quash the proceedings to prevent unnecessary harassment.Conclusion:The court concluded that the petitioner could not be held liable under Section 141 of the Negotiable Instruments Act, 1881, as there were no specific averments or evidence proving her responsibility for the conduct of the company's business. Consequently, the proceedings against the petitioner were quashed, and the learned Magistrate was directed to dispose of the cases within four months. This decision underscores the necessity for clear and specific allegations in complaints under Section 141 to establish vicarious liability.