2017 (12) TMI 1099 - HC - Indian Laws

Special Director not vicariously liable for cheque dishonour under Sections 138 & 141

The court held that the applicant, a Special Director appointed by BIFR, could not be vicariously liable for cheque dishonour under Sections 138 and 141 ... Liability of applicant, Special Director of the accused company - dishonour of the cheques - whether the applicant herein being the Special Director appointed by the Board for Industrial & Financial Reconstruction can be held vicarious liable under section141 of the N.I. Act? - Held that: - issue raised in this batch of writapplications is squarely covered by a decision of this Court in the case of Nikhil P. Gandhi Vs. State of Gujarat & Ors. [2016 (6) TMI 726 - GUJARAT HIGH COURT], where it was held that there is no cogent material on record to fasten any vicarious liability so far as the other accused are concerned who are NonExecutive Directors including the Office Bearers concerned with the Accounts Department of the company. No vicarious liability can be fastened on the applicant herein, he being appointed as a Special Director by the Board for Industrial And Financial Reconstruction. Application allowed. Issues Involved:1. Liability of the applicant as Special Director for cheque dishonour under Sections 138 and 141 of the Negotiable Instruments Act.2. Applicability of vicarious liability under Section 141 of the N.I. Act to the applicant.3. Examination of the applicant's role and responsibilities in the company.4. Legal precedents and interpretations relevant to the case.Issue-wise Detailed Analysis:1. Liability of the Applicant as Special Director for Cheque Dishonour under Sections 138 and 141 of the Negotiable Instruments Act:The applicant, originally accused no.4, sought relief under Article 226 of the Constitution of India to quash the process issued against him under Sections 138 and 141 of the N.I. Act. The applicant was appointed as a Special Director by the Board for Industrial & Financial Reconstruction (BIFR) for the company M/s. Baroda Rayon Corporation Limited, which was shown as accused no.1 in the complaint. The main question was whether the applicant, as a Special Director, could be held vicariously liable for the dishonour of cheques.2. Applicability of Vicarious Liability under Section 141 of the N.I. Act to the Applicant:The judgment extensively referenced the decision in 'Nikhil P. Gandhi Vs. State of Gujarat & Ors.' (2016) 4 GLR 2838, which clarified the vicarious liability of directors and officers under Section 141 of the N.I. Act. The court noted that two classes of persons are liable under Section 138: those in charge of and responsible for the company's business and those whose neglect or connivance led to the offence. The applicant, being a Special Director appointed by BIFR, did not fall into either category as he was not responsible for the company's day-to-day affairs or the conduct of its business.3. Examination of the Applicant's Role and Responsibilities in the Company:The court examined the applicant's appointment order, which specified that the Special Director's role was to attend board meetings and provide oversight without being involved in the day-to-day management. The applicant's responsibilities were limited to attending meetings and providing guidance, which did not include managing the company's business or financial affairs. Therefore, the applicant could not be held liable for the dishonour of cheques issued by the company.4. Legal Precedents and Interpretations Relevant to the Case:The judgment cited various legal precedents to support its conclusion. In 'Anil Hada v. Indian Acrylic Ltd' and 'K.K. Ahuja v. V.K. Vora', the Supreme Court clarified that vicarious liability under Section 141 requires specific allegations about the role and responsibilities of the accused. The court also referenced 'Harshendra Kumar D. v. Rebatilata Koley', emphasizing that criminal prosecution should not be initiated without clear evidence of the accused's involvement. The court reiterated that non-executive directors, nominee directors, and those not involved in the company's day-to-day management could not be held vicariously liable under Section 141.Conclusion:The court concluded that the applicant, being a Special Director appointed by BIFR, could not be held vicariously liable for the offence under Section 138 of the N.I. Act. The writ applications were allowed, and the criminal complaints against the applicant were quashed. The judgment emphasized the need for complainants to provide specific allegations and evidence when invoking vicarious liability under Section 141, rather than routinely implicating all directors and officers.