2020 (9) TMI 594 - HC - Indian Laws

Court quashes proceedings against Non-Executive Director in dishonored cheques case

The court quashed the proceedings against the petitioner, a Non-Executive Director, in cases involving dishonored cheques. It held that mere directorship ... Vicarious liability under Section 141 of the Negotiable Instruments Act - requirement of specific averments in the complaint - non-executive director not liable for company offences absent charge of day-to-day affairs - Magistrate's duty to apply mind before taking cognizance - exercise of High Court's inherent jurisdiction under Section 482 Cr.P.C. to prevent abuse of processVicarious liability under Section 141 of the Negotiable Instruments Act - requirement of specific averments in the complaint - non-executive director not liable for company offences absent charge of day-to-day affairs - Whether the complaint contained the specific averments necessary to fasten vicarious criminal liability on the petitioner under Section 141 of the Negotiable Instruments Act and whether proceedings against the petitioner should be quashed. - HELD THAT: - The Court held that Section 141 creates vicarious liability which must be strictly pleaded. A complaint must specifically aver that, at the time of the offence, the person sought to be made liable was in charge of and responsible for the conduct of the company's business; mere recital of directorship is insufficient. The judgments of this Court and the Supreme Court were applied to reiterate that only those who were at the helm of affairs, or otherwise clearly in charge (for example, managing director or authorized signatory), can be vicariously prosecuted without further specific averments. In the present case the complaint merely described the petitioner as a Director and contained a broad statement that the second and third accused were 'in charge of the managing all such business activities' without unambiguous particulars of the petitioner's role or control over day-to-day affairs. The petitioner is alleged to be a non-executive director and there were no specific factual averments showing she was in charge of, or responsible for, conduct of the business at the relevant time. Consequently, the Magistrate issued process without the requisite specific averments and without adequate application of mind as to Section 141's requirements. Given the absence of necessary averments and to prevent abuse of process, the Court found it appropriate to quash the proceedings insofar as they related to the petitioner. [Paras 6, 10]Proceedings under Sections 138 and 141 of the Negotiable Instruments Act are quashed insofar as the petitioner is concerned for lack of specific averments establishing vicarious liability; the complaint did not meet the statutory requirement that the accused be shown to have been in charge of and responsible for the company's business at the relevant time.Final Conclusion: The petitions are allowed and the criminal proceedings in the listed complaint numbers are quashed as against the petitioner for failure to aver facts necessary to fasten vicarious liability under Section 141 of the Negotiable Instruments Act; trial against the other accused is to continue and be completed within six months. Issues Involved:1. Whether the petitioner, a Director of the accused company, can be held liable under Section 138 and Section 141 of the Negotiable Instruments Act (NI Act).2. Whether the complaint contains specific averments to make the petitioner vicariously liable under Section 141 of the NI Act.3. Whether the proceedings against the petitioner should be quashed under Section 482 of the Criminal Procedure Code (Cr.P.C.).Issue-Wise Detailed Analysis:1. Liability of the Petitioner Under Section 138 and Section 141 of the NI Act:The petitioner was arrayed as the third accused in the complaint for offences under Section 138 of the NI Act. The respondent alleged that the company availed term loans and issued cheques that were dishonored. The petitioner, a Director, was claimed to be in charge of the company's business activities. However, the petitioner argued that merely being a Director does not make one liable under Section 141 of the NI Act unless it is specifically averred that the Director was responsible for the conduct of the company's business at the time of the offence. The court reiterated that criminal liability under Section 141 can only be fastened on those in charge of and responsible for the conduct of the company's business at the relevant time.2. Specific Averments in the Complaint:The court emphasized the necessity of specific averments in the complaint to hold a Director vicariously liable under Section 141. The complaint must detail how and in what manner the Director was responsible for the conduct of the company's business. The petitioner relied on several Supreme Court judgments, including National Small Industries Corporation Limited vs. Harmit Singh Panital, N.K. Wahi vs. Shekhar Singh, Pooja Ravinder Devidasani vs. State of Maharashtra, and Ashok Mal Bafna vs. M/s Upper India Steel Mfg & Engg Co. Ltd, which consistently held that a mere designation as a Director is insufficient. The complaint must spell out the Director's role and responsibilities. In this case, the court found that the complaint did not meet these requirements, as it lacked specific allegations against the petitioner.3. Quashing of Proceedings Under Section 482 Cr.P.C.:Given the absence of specific averments in the complaint and the petitioner's role as a Non-Executive Director, the court concluded that the petitioner could not be held vicariously liable for the company's offence. The court decided to quash the proceedings against the petitioner to prevent the abuse of the legal process and secure the ends of justice. The court directed the trial court to complete the trial against the other accused within six months.Conclusion:The court allowed the criminal original petitions and quashed the proceedings against the petitioner in CC.No.1706 of 2019, CC.No.5827 of 2019, and CC.No.5828 of 2019. The trial court was instructed to expedite the trial against the remaining accused within a specified timeframe. The judgment underscored the importance of specific averments in complaints to establish vicarious liability under Section 141 of the NI Act.