Director not vicariously liable for company's dues under Negotiable Instruments Act

The court held that as an independent non-executive nominee director, the petitioner could not be vicariously liable for the company's dues under the Negotiable Instruments Act. The court emphasized that criminal liability under the Act arises only if a person is in charge of and responsible for the company's conduct at the time of the offense. Since the complaints lacked specific allegations against the petitioner and did not show his involvement in the company's affairs at the relevant time, the court quashed the summoning orders against him.

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Issues Involved:
1. Vicarious liability of an independent non-executive nominee director under Sections 138 and 142 of the Negotiable Instruments Act (NI Act).
2. Validity of the complaints and summoning orders against the petitioner based on his role and responsibilities.

Issue-wise Detailed Analysis:

1. Vicarious liability of an independent non-executive nominee director under Sections 138 and 142 of the NI Act:

The petitioner challenged the summoning orders dated 9th May 2016 and 30th March 2016 for offences under Sections 138 read with 142 of the NI Act. The complaints were filed by two respondents against a company and its directors, alleging dishonor of cheques issued towards part-payment of monthly rents. The petitioner contended that as an independent non-executive nominee director, he could not be held vicariously liable for the company’s dues and had resigned from the company before the cause of action accrued.

The court referred to the Supreme Court judgments in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and K.K. Ahuja v. V.K. Vora, which clarified that vicarious liability under Section 141 of the NI Act arises only if a person is in charge of and responsible for the conduct of the business of the company at the time the offence was committed. The court emphasized that being a director or holding a designation is not sufficient to cast criminal liability; the role and responsibility in the company’s affairs at the relevant time are crucial.

2. Validity of the complaints and summoning orders against the petitioner based on his role and responsibilities:

The court noted that the petitioner was appointed as an independent non-executive nominee director in 2009 and resigned in 2015. The Reserve Bank of India’s Master Circular on 'Wilful Defaulters' and the Companies Act, 2013, recognize the distinction between independent and nominee directors. Section 149(12) of the Companies Act, 2013, limits the liability of independent and non-executive directors to acts of omission or commission by the company that occurred with their knowledge, consent, connivance, or due to their lack of diligence.

The court found that the complaints lacked specific averments showing that the offence was committed with the petitioner’s knowledge, consent, or connivance. It was merely stated that the directors were actively participating in the company’s affairs, without attributing any specific role to the petitioner. The petitioner was neither the Managing Director nor the signatory to the cheques, and no evidence suggested he was responsible for the company’s day-to-day functioning.

Conclusion:

In light of the legal position and the absence of specific allegations against the petitioner, the court allowed the petitions and quashed the impugned orders to the extent they issued summons to the petitioner in the specified complaint cases. The petitions and applications were disposed of accordingly.

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