2017 (11) TMI 2048 - HC - Indian Laws

Exoneration of Nominee Director: Mere Directorship Insufficient for Liability in Negotiable Instruments Act Offenses.

KANARATH PAYATTIYATH BALARAJ Versus PVR LIMITED

The HC quashed the summoning order against the petitioner, a former director, in criminal complaints under Section 138 of the Negotiable Instruments Act, ... Dishonour of Cheque - vicarious liability of independent non-executive nominee director - petitioner resigned from the company in the year 2015 - Section 141 of Negotiable Instruments Act, 1881 - HELD THAT:- This case arise from the Criminal Complaint Case No.153/1/16 wherein petitioner has been impleaded on the allegations that he was a Director of the concerned company and have been participating in day-today affairs of the company. He has taken a plea that he was a nominee independent Director and was not responsible. Petition disposed off. Issues:1. Quashing of summoning order against the petitioner in criminal complaints under Section 138 of the Negotiable Instruments Act, 1881.2. Interpretation of Section 141 of the Act regarding the liability of a director for company's offenses.3. Application of Section 149(12) of the Companies Act, 2013 to determine director's liability.4. Vicarious liability of a director for the company's actions.5. Acceptance of plea regarding director's role as a nominee independent director.Analysis:1. The judgment dealt with the quashing of the summoning order against the petitioner in criminal complaints under Section 138 of the Negotiable Instruments Act, 1881. The petitioner, a former director of a company, was impleaded in various cases based on his role as a director. The court referred to a previous judgment where a similar summoning order was quashed, following which the current summoning order against the petitioner was also quashed.2. The interpretation of Section 141 of the Act regarding the liability of a director for the company's offenses was a crucial aspect of the judgment. The court considered the petitioner's contention that as an independent non-executive nominee director who resigned from the company, he cannot be held vicariously liable for the company's actions. The court emphasized the need for specific averments in the complaint to establish the director's knowledge, consent, or connivance in the offense.3. The application of Section 149(12) of the Companies Act, 2013 was pivotal in determining the director's liability. The court highlighted that under this provision, a director can only be held liable for acts committed with their knowledge, consent, connivance, or lack of diligence attributable through board processes. The judgment underscored the importance of demonstrating the director's direct involvement in the offense to establish liability.4. The concept of vicarious liability of a director for the company's actions was thoroughly examined in the judgment. The court emphasized that merely being a director or having financial ties with the company does not automatically make a director responsible for the company's day-to-day affairs. The absence of a specific role attributed to the director in the complaints led to the dismissal of vicarious liability in this case.5. The acceptance of the plea regarding the director's role as a nominee independent director was a significant aspect of the judgment. The court acknowledged the petitioner's position as a nominee independent director and clarified that such a role does not inherently entail responsibility for the company's operations. The judgment reiterated that vicarious liability cannot be imposed on a director without establishing their direct involvement in the alleged offense.Overall, the judgment focused on the nuanced interpretation of legal provisions governing directorial liability and vicarious responsibility in the context of corporate offenses, ultimately leading to the quashing of the complaints against the petitioner based on the lack of specific allegations linking the director to the alleged offenses.