2021 (10) TMI 140 - HC - Indian Laws

Liability of Directors & Company Secretary under Negotiable Instruments Act: Court Quashes Criminal Cases

The High Court examined the liability of Independent Directors and a Company Secretary under Section 138 and Section 141 of the Negotiable Instruments ... Dishonor of Cheque - vicarious liability of a person who is responsible to the company for the conduct of business of the company - offences punishable under Section 138 read with Section 141 of the Negotiable Instruments Act - HELD THAT:- The averments are not to the effect that petitioner no.11 was ‘in charge’ of, but to the effect that, he was looking after and responsible for the day-to-day affairs, conduct and management of accused no.1Company. Expression ‘in charge’ and ‘looking after’ the affairs, conduct of respondent company, are distinct. Section 141 uses the words “was in-charge of, and was responsible to the company for the conduct of the business of the company”. In absence of averments in the complaint, that petitioner no.1 is also “in charge” of the business of the company, the case could not fall under Section 141(1) of the Act. This takes to find out whether, petitioner no.11 being Officer of the Company could be made liable under subsection 2 of Section 141. When verified, the averments in the complaint, are vague and general in nature and do not particularize the role of the petitioner in regard to facility agreement dated 28th March, 2010 executed by the Company with the complainant; nor the complaint discloses that the alleged offence was committed by the Company in connivance or was a result of the negligence of the petitioner no.11. As a consequence, petitioner cannot be made liable under sub-section (2) of Section 141 of the Act. Petition allowed. Issues:Challenge to summoning order under Section 138 of Negotiable Instruments Act against petitioners, Liability of Independent Directors under Section 138 read with Section 141 of the Act, Liability of Company Secretary under Section 141(1) and Section 141(2) of the Act.Analysis:1. The petitioners challenged the summoning orders under Section 138 of the Negotiable Instruments Act. The High Court examined the liability of Independent Directors under Section 138 read with Section 141 of the Act. The court also analyzed the liability of a Company Secretary under Section 141(1) and Section 141(2) of the Act.2. The court noted that the complainant decided not to pursue the complaint against certain Independent Directors after verifying their status as 'Independent Directors' of the accused company. The focus then shifted to determining the maintainability of the complaint against the Company Secretary, petitioner no.11.3. The court referred to Section 141 of the Act, which outlines the liability of individuals in cases of dishonored cheques issued by a company. The court observed that liability under Section 141(1) arises when a person is in charge of the business of the company and responsible for its conduct.4. The court analyzed the arguments presented by the petitioners' counsel, emphasizing the necessity of specific averments in the complaint regarding consent, connivance, or negligence for establishing liability under Section 141(2) of the Act. The court also referred to a Supreme Court judgment summarizing the requirements for liability under Section 141.5. The court examined the complaint's averments regarding the Company Secretary, petitioner no.11, and concluded that the complaint did not specifically allege that the petitioner was 'in charge' of the company's business. The court highlighted the distinction between being 'in charge' and merely looking after the affairs of the company.6. Referring to the Supreme Court's observations, the court emphasized that to be vicariously liable under Section 141(1), a person must fulfill both legal and factual requirements of being responsible for the company's conduct and in charge of its business. In the absence of specific averments in the complaint, the court held that liability under Section 141(1) could not be established.7. The court further analyzed the complaint's vague and general nature, noting the lack of specific details regarding the Company Secretary's role in the alleged offense. Consequently, the court held that the petitioner could not be made liable under Section 141(2) of the Act.8. Based on the above analysis, the court allowed the petitions, quashing the criminal cases pending against petitioner no.11-accused no.13. The court made the rule absolute in favor of the petitioners and disposed of the petitions accordingly.