1997 (7) TMI 701 - HC - Indian Laws

Charges Dismissed for Some Directors Due to Lack of Specific Allegations, Others to Face Trial for Financial Offense.

The court determined that the prosecution under Section 138 of the Negotiable Instruments Act against directors requires specific allegations that each ... - Issues Involved:1. Permissibility of prosecuting all directors under Section 138 of the Negotiable Instruments Act.2. Specific allegations required for prosecuting directors.3. Responsibility and liability of directors in the issuance and dishonor of a cheque.Detailed Analysis:1. Permissibility of prosecuting all directors under Section 138 of the Negotiable Instruments Act:The core issue in this case was whether it is permissible to launch a prosecution under Section 138 of the Negotiable Instruments Act against all directors of a company, despite a nomination made by the company. The court analyzed various precedents, including those under similar provisions in different statutes such as the Essential Commodities Act and the Prevention of Food Adulteration Act. It was emphasized that prosecution must be based on clear allegations that the directors were responsible for the conduct of the business at the time the offence was committed.2. Specific allegations required for prosecuting directors:The court highlighted the necessity of specific allegations in the complaint regarding the role played by each director in the transaction. It was stated that there must be clear and unambiguous allegations detailing how each director was in charge of and responsible for the conduct of the business. The court referred to various judgments to support this view, including:- Sham Sunder and Others v State of Haryana: It was held that no clear allegation against directors or managers meant proceedings could be quashed against directors.- Kishore Lal and Others v State of Karnataka: Prosecution must show that the partner or director was in charge of and responsible for the conduct of the business.- Bakridan Bibi and Others v State of Bihar: Mere naming of persons in the complaint does not warrant criminal proceedings without specific allegations of their involvement in the conduct of business.3. Responsibility and liability of directors in the issuance and dishonor of a cheque:The court examined whether the directors could be held liable for the dishonor of a cheque issued by the company. It was noted that:- Section 141 of the Negotiable Instruments Act: This section states that every person who was in charge of and responsible for the conduct of the business of the company at the time the offence was committed shall be deemed guilty.- R. Banerjee and Others v H.D. Dubey and Others: The Supreme Court held that if the complaint does not constitute any offence, no process can be issued against co-accused other than the company and the nominated person.- Smt. Sharada Agarwal and Others v Additional C.M.M. II, Kanpur and Others: The Allahabad High Court held that directors cannot be held responsible for the dishonor of cheques if there are no allegations that they were in charge of and responsible for the business.The court concluded that the complaint must specifically allege that directors were responsible for the conduct of the business and had knowledge or connivance in the commission of the offence. In this case, the complaint lacked such specific allegations against petitioners 4 to 8, and thus, the prosecution against them was not sustainable. However, the Managing Director and Joint Managing Director (petitioners 1 to 3) were found to be necessary parties due to their direct involvement in the transaction and issuance of the cheque.Conclusion:The petition was partly allowed, dismissing the complaint against petitioners 4 to 8 due to the absence of specific allegations regarding their involvement in the conduct of the business. The complaint against petitioners 1 to 3 was upheld, and the Magistrate was directed to proceed against them according to law. The court also made observations for the proper guidance of trial courts to scrutinize the necessity of arraigning all accused persons to avoid unnecessary delay and harassment.