2016 (10) TMI 435 - HC - Indian Laws

Directors' Liability: Specific Allegations Required for Vicarious Liability

The Supreme Court upheld the legality of summoning accused directors in a case involving dishonor of a cheque by a company. The Court emphasized the ... Criminal liability on the Directors - Held that:- Vicarious criminal liability on the Directors could only be fastened if they were in-charge and responsible for the conduct of the business of the company. As noted above in the complaint filed, the averments that the three petitioners herein were the Director, In-charge and responsible for the day-to-day affairs and conduct of the business of Webtech has clearly been made. Considering the fact that the averments in the complaint are within the four corners of the principle laid down by the Supreme Court in the decision of National Small Industries (2010 (2) TMI 590 - SUPREME COURT OF INDIA ) and it is not shown that the petitioners were not Directors at the time when the offence was committed, find no reason to quash the order summoning the petitioners. Issues:Complaint under Section 138 of the Negotiable Instruments Act, 1881 against a company and its directors for dishonor of cheque - Summoning of accused directors challenged on grounds of lack of specific allegations - Interpretation of vicarious liability principles for directors in criminal complaints.Analysis:The complaint was filed under Section 138 of the Negotiable Instruments Act, 1881 against a company and its directors for dishonor of a cheque. The complainant alleged that the company had ordered certain products and failed to make full payment, leading to the issuance of a dishonored cheque. The complaint specifically named the company and its directors as accused parties responsible for the offense. The accused directors challenged the summoning order issued by the Trial Court, claiming that no overt act was attributed to them and thus the summoning was illegal. They argued that the complainant failed to make specific allegations against each accused person, rendering the complaint against the directors not maintainable.The Supreme Court's decision in National Small Industries Corporation Ltd. vs. Harmeet Singh Paintal & Anr. was cited, emphasizing the necessity for specific averments in complaints to establish vicarious liability for directors in such cases. The principles laid down by the Supreme Court highlighted that vicarious liability can only be inferred against directors who were in charge of and responsible for the conduct of the company's business at the time of the offense. The complaint alleged that the accused directors were in charge and responsible for the day-to-day affairs and business conduct of the company, aligning with the principles outlined by the Supreme Court.The Court reiterated that vicarious criminal liability on directors could only be established if they were in charge and responsible for the business conduct of the company. Since the complaint's averments regarding the accused directors' roles were in line with the principles established by the Supreme Court, and there was no evidence to show that the directors were not in their positions at the time of the offense, the Court found no reason to quash the summoning order. Consequently, the petition challenging the summoning order was dismissed, upholding the legality of summoning the accused directors in the case.