2013 (7) TMI 1086 - HC - Indian Laws

Directors cleared of vicarious criminal liability in public company case under Negotiable Instruments Act

Briji Gopal Daga Versus State of Kerala And Anr.

The court quashed complaints against independent Directors of a public limited company for alleged vicarious criminal liability under the Negotiable ... - Issues Involved:1. Extent and magnitude of vicarious criminal liability of independent Directors u/s 138 read with Section 141 of the Negotiable Instruments Act, 1881.2. Validity of the prosecution against independent Directors based on their involvement in the day-to-day affairs of the company.Summary of Judgment:Issue 1: Vicarious Criminal Liability of Independent DirectorsThe petitions were filed u/s 482 Cr.P.C. seeking quashment of complaints against independent Directors (petitioners) of a public limited company for alleged vicarious criminal liability u/s 138 read with Section 141 of the NI Act. The court examined the statutory criminal liability arising from the dishonour of cheques and the specific conditions under Section 141 that must be satisfied to hold officers of a company criminally liable. It was emphasized that vicarious criminal liability should be strictly construed and must be meticulously pleaded and proved.Issue 2: Validity of Prosecution Against Independent DirectorsThe petitioners contended that they were independent Directors and not involved in the day-to-day affairs of the company. They argued that their prosecution was an abuse of the process of the court. The court referred to the legal precedent set in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, which clarified that merely holding a designation or office in a company is insufficient to cast criminal liability. The complaint must specifically allege that the Directors were in charge of and responsible for the conduct of the business at the relevant time.The court found that the complainant did not verify the true facts regarding the petitioners' roles and responsibilities. The documents produced by the petitioners, including Form 32 and annual reports, indicated that they were independent and non-executive Directors, not involved in the day-to-day management. The court concluded that the prosecution against the petitioners was without factual or legal basis and constituted an abuse of the process of the court.Conclusion:The court allowed all Criminal Miscellaneous Cases, quashing the complaints against the petitioners. It clarified that the complainant could proceed with the complaint against the other accused named in the complaint. All Criminal Miscellaneous applications to accept documents were allowed, and other applications were disposed of.