2017 (4) TMI 1017 - HC - Indian Laws

Court Upholds Complaint, Applicants Must Prove Non-Involvement

DR. JOGINDER SINGH JUNEJA AND 1 Versus STATE OF GUJARAT AND 1

DR. JOGINDER SINGH JUNEJA AND 1 Versus STATE OF GUJARAT AND 1 - TMI Issues Involved:1. Whether the applicants, as non-executive and independent directors, can be held vicariously liable under Section 141 of the Negotiable Instruments Act.2. Adequacy of the averments in the complaint to fasten vicarious liability.3. The role and responsibilities of the applicants within the company.4. The evidentiary requirements to substantiate the applicants' involvement in the day-to-day affairs of the company.Detailed Analysis:1. Vicarious Liability of Non-Executive and Independent Directors:The applicants sought to quash the proceedings under Section 138 of the Negotiable Instruments Act, arguing that they were non-executive and independent directors with no involvement in the day-to-day affairs of the company. The court considered the scope of Section 141, which imposes vicarious liability on persons in charge of and responsible for the conduct of the business of the company at the time the offence was committed. It was emphasized that merely holding a designation or office in a company is insufficient to establish liability; there must be a clear connection to the conduct of the business.2. Adequacy of Averments in the Complaint:The court examined whether the complaint contained adequate averments to establish that the applicants were in charge of and responsible for the conduct of the business. The complaint alleged that the applicants were members of the audit committee and were responsible for overseeing financial, audit, and other matters directly related to the conduct of the business. The court found these averments sufficient to proceed against the applicants.3. Role and Responsibilities of the Applicants:The court noted that the applicants were members of the audit committee, which had significant responsibilities, including oversight of the company’s financial reporting process, recommending the appointment of auditors, and reviewing financial statements. Additionally, the applicants were remunerated by the company, indicating their involvement in its affairs. This evidence suggested that the applicants were not entirely detached from the company's operations.4. Evidentiary Requirements:The court held that while the basic averments in the complaint were sufficient to proceed against the applicants, they could still present evidence during the trial to demonstrate their lack of involvement in the day-to-day affairs of the company. The court emphasized that the burden would shift to the applicants to provide 'sterling uncontrovertible material or acceptable circumstances' to substantiate their claim of non-involvement.Conclusion:The court rejected the applications to quash the proceedings, stating that the complaint contained sufficient averments to establish a prima facie case against the applicants. The applicants were given the opportunity to present evidence during the trial to prove their non-involvement in the day-to-day affairs of the company. The court clarified that its observations should not influence the trial court’s decision, which should be based on the evidence presented during the trial.