2018 (9) TMI 396 - HC - Indian Laws

Director's Criminal Liability Petition Dismissed Under Section 138: Importance of Specific Allegations and Evidence

The court dismissed the petition challenging the liability of a director under Section 138 of the Negotiable Instrument Act. It emphasized the importance ... Dishonor of Cheque due to insufficiency of funds - Section 138 of the Negotiable Instrument Act - Held that:- The burden is on the complainant to adduce evidence to justify the averments in the complaint. If the complaint is lacking in averments, that can be good reason to quash the proceeding. However, when the complaint is replete with averments, it will be beyond the scope of this Court acting under Section 482 of Cr.P.C., to give a declaration that those averments are contrived and therefore, the prosecution should be quashed - petition dismissed. Issues:1. Liability of a director under Section 138 of the Negotiable Instrument Act.2. Validity of resignation of a director in relation to criminal liability.3. Sufficiency of averments in a complaint to establish vicarious liability.4. Interpretation of Form DIR Nos. 11 and 12 in legal proceedings.5. Comparison of judgments from different High Courts on similar cases.6. Burden of proof on the complainant in quashing criminal proceedings.7. Application of legal precedents in determining vicarious liability of a director.Issue 1: Liability of a director under Section 138 of the Negotiable Instrument ActThe case involved a complaint by a company engaged in computer distribution against another company for dishonoring a cheque. The petitioner, an independent director, challenged his prosecution under Section 138. The petitioner claimed he had resigned before the cheque issuance, citing Form No. DIR-12. The complainant argued that the resignation date was not conclusive, as the acceptance date was later. The court analyzed the complainant's averments and the petitioner's role, emphasizing the need for specific allegations to establish liability.Issue 2: Validity of resignation of a director in relation to criminal liabilityThe petitioner relied on judgments from Mumbai and Calcutta High Courts where similar cases were quashed due to director resignations. However, the court noted the absence of such references in those judgments. It highlighted discrepancies in the resignation date acceptance and filing, indicating a need for thorough examination beyond mere resignation claims to determine criminal liability.Issue 3: Sufficiency of averments in a complaint to establish vicarious liabilityBoth parties debated the adequacy of averments in the complaint to establish vicarious liability under Section 141. The complainant contended that necessary averments were made, while the petitioner argued they were general and insufficient. The court stressed the importance of evidence supporting averments and rejected the notion of quashing proceedings solely based on lacking averments.Issue 4: Interpretation of Form DIR Nos. 11 and 12 in legal proceedingsThe court discussed the reliability of Form DIR Nos. 11 and 12 in legal proceedings. It highlighted discrepancies in dates and emphasized the need for a comprehensive evaluation beyond documentary evidence to ascertain the impact of director resignations on criminal liability.Issue 5: Comparison of judgments from different High Courts on similar casesThe court compared judgments from different High Courts on similar cases involving director resignations. It noted the absence of crucial details in those judgments and highlighted the importance of specific allegations and evidence in determining vicarious liability.Issue 6: Burden of proof on the complainant in quashing criminal proceedingsThe court emphasized the burden on the complainant to substantiate allegations in the complaint to justify quashing criminal proceedings. It differentiated between lacking and detailed averments, stating that a complaint replete with averments cannot be dismissed under Section 482 of Cr.P.C.Issue 7: Application of legal precedents in determining vicarious liability of a directorLegal precedents, including judgments from the Supreme Court, were cited to determine vicarious liability of directors. The court referred to specific cases where liability was established based on director involvement in company affairs. It concluded that prima facie allegations in the complaint warranted continuation of the prosecution, rejecting the plea for quashing.In conclusion, the judgment delved into the complexities of vicarious liability of directors under the Negotiable Instrument Act, emphasizing the need for specific allegations, evidence, and thorough evaluation beyond documentary evidence to establish criminal liability. The court's decision to dismiss the petition and continue the prosecution underscored the importance of detailed averments and adherence to legal precedents in determining directorial liability in such cases.