2022 (4) TMI 871 - HC - Indian Laws

Court quashes proceedings in Section 138 case due to lack of vicarious liability, emphasizes company's involvement

Vaikundamani, Saraswathi, Shakila Versus Bakrudeen

The court quashed the proceedings against the accused in a trial under Section 138 of the Negotiable Instruments Act. The court held that prosecution ... Dishonor of cheque - vicarious liability invoking Section 141 of the Negotiable Instruments Act - HELD THAT:- It is not in dispute that the Company, viz., M/s.Himaalayaa Agro Tech Limited was not arrayed as an accused. Further, on perusal of the cheque, it is seen that the cheque was issued by the Company signed by its authorised signatory. In a proceedings under Negotiable Instruments Act the Directors and others of the Company fastened with vicarious liability invoking Section 141 of the Negotiable Instruments Act and in the absence of Company [Principal] being arrayed as accused, the proceedings against others invoking Section 141 of the Negotiable Instruments Act is not sustainable. Added to it, on perusal of the notice and the complaint, it is seen that there is no specific averments against the petitioners who had taken part in the dayto- day affairs of the Company. Hence, it is imperative to array the company as an accused and thereafter, proceed against the Directors and others. Thus, looking from any angle the accused cannot be prosecuted and hence, the complaint against the petitioners is not sustainable. Petition allowed. Issues:Accused seeking quashing of trial on private complaint under Section 138 of Negotiable Instruments Act due to lack of specific averments against them, absence of company as accused, and vicarious liability under Section 141.Analysis:The petitioners, accused in a private complaint under Section 138 of Negotiable Instruments Act, sought quashing of trial. The complaint alleged non-repayment of a loan facilitated by the respondent, leading to a bounced cheque. The petitioners contended they were not involved in day-to-day affairs of the company and were only nominal directors. They argued the complaint lacked essential details about the loan and failed to implicate the company as an accused. The petitioners highlighted their personal circumstances, including financial constraints and health issues, to support their plea for quashing the complaint.The respondent, opposing the quash petition, argued that the petitioners' roles should be determined during trial, citing precedents where directors were held liable even without the company being accused directly. The respondent emphasized that the petitioners did not contest issuing the cheque and failed to prove the company's liability discharge. The respondent relied on legal principles allowing prosecution of directors based on their involvement and responsibility in the company's affairs.The court referred to relevant legal precedents, including the decision in Aneeta Hada vs. Godfather Travels and Tours Private Limited, emphasizing the necessity of arraigning the company as an accused to establish vicarious liability under Section 141 of the Act. The court noted that the company was not named as an accused in the complaint, and the cheque was issued by the company's authorized signatory. Given the absence of specific averments against the petitioners regarding their involvement in the company's affairs, the court concluded that prosecution under Section 138 and 142 of the Act, invoking vicarious liability, was unsustainable without the company being accused directly.In light of the above analysis, the court quashed the proceedings against the petitioners in the trial pending before the Judicial Magistrate. The court allowed the Criminal Original Petition, thereby closing the connected miscellaneous petition and ruling in favor of the accused seeking the quashing of the complaint under the Negotiable Instruments Act.