2022 (8) TMI 466 - HC - Indian Laws

Director not liable under Section 138

Javahar Lal Versus OVT India Pvt. Limited and Anr.

The court quashed the complaint cases against the petitioner, a director of the accused company, under Section 138 read with Section 141 of the Negotiable ... Dishonor of Cheque - vicarious liability of Director - Managing Director or Joint Managing Director in charge of the business or not - liability of signatory of cheque - Section 141 of the N.I. Act - HELD THAT:- While it is correct that there can be no deemed liability of Directors, there is a simultaneous requirement that when the petitioner seeks the quashing of a complaint, there is an onus on the petitioner to furnish some kind of sterling and incontrovertible material or other reasonable circumstances to substantiate his contention that he was not in-charge of and responsible for the conduct of the business of the accused company. A complaint cannot be quashed merely on the ground that no particulars are given in the complaint about his role if the basic averment was sufficient to make out a case in the complaint. There are averments that both the Directors had acted on behalf of the accused No.1 for the manufacture and supply by the complainant/respondent of 12,000 STBs Units at a particular price. The complainant has averred that it had entered into an MoU on 14th June, 2018 and had executed to Tripartite Agreement dated 18th September, 2018 and 2nd December, 2018 with the accused No.1 in this regard, whereafter the post dated cheques drawn in favour of the complainant were issued. The complaint further sets out how when the accused No.1 company failed to make timely payments, a demand notice was specifically issued for the payment of outstanding dues to the tune of Rs.27,13,10,296/-. The 15 cheques were presented which were then dishonored leading to the filing of the complaints - the document relied upon by the respondents does not reflect the fact that the petitioner while being a Director of the accused company was participating in the conduct of the business by entering into trade agreements on behalf of the company. The averments do not find support from the very documents relied upon by the complainant/respondent. The petitioner is not responsible for and in-charge of the business of the accused company. It is not pleaded in the complaints that the dishonoured cheques had been signed by the petitioner. Nor has it been so urged before this Court. Thus, the averments made in the complaints even if be fully accepted, the documents annexed thereto ex facie show that the petitioner though a Director of the accused company was not in-charge of or responsible for the conduct of its business. Thus, an essential ingredient of Section 141 N.I. Act based on which vicarious liability could be attached to the petitioner is missing. The position of law being what it, is no two views can be taken in the present matters - Petition allowed. Issues:Petitions for quashing of proceedings under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 due to lack of specific allegations against the petitioner regarding vicarious liability.Analysis:1. The petitions involve the quashing of proceedings under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881, as they pertain to connected complaint cases against the same parties for dishonor of cheques related to the same transaction.2. The respondents filed complaints against the petitioner, a director of the accused company, seeking to establish vicarious liability. The petitioner argued that the complaints lacked specific averments attributing responsibility to him for the company's conduct, citing the necessity of such allegations for prosecution to commence, as per the Supreme Court judgment in Ramrajsingh vs. State of Madhya Pradesh (2009) 6 SCC 729.3. The respondents contended that the petitioner, as a director, was actively involved in business decisions leading to the issuance of the dishonored cheques, emphasizing that the liability arose from agreements signed by the petitioner. Reference was made to legal precedents like A.R. Radha Krishna vs. Dasari Deepthi (2019) 15 SCC 550 to support their argument.4. The court considered the legal requirements under Section 141 of the N.I. Act for establishing vicarious liability, emphasizing the need for specific averments in complaints regarding the accused's role in the company's business conduct. Mere directorship does not automatically imply liability; the accused must be shown to be in charge of the company's affairs.5. It was clarified that the legal fiction creating vicarious liability under Section 141 necessitates strict compliance with statutory requirements, distinguishing civil liability from criminal liability under the Act. The court referred to precedents like Alka Khandu Avhad vs. Amar Syamprasad Mishra & Anr. (2021) 4 SCC 675 to underscore the importance of fulfilling legal criteria for liability.6. The court reiterated the necessity of specific averments in complaints to attach vicarious liability to a director, as established in previous judgments like S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla & Anr. (2005) 8 SCC 89. Mere designation as a director is insufficient to establish liability.7. While recognizing the absence of specific allegations against the petitioner in the complaints, the court emphasized the need to consider the complete averments to determine if the accused director was indeed in charge of the company's business conduct.8. Upon examination of the documents and agreements involved, the court found that the petitioner, although a director, was not responsible for the company's business conduct as alleged by the respondents. The lack of evidence showing the petitioner's active involvement led to the quashing of the complaints against him.9. In conclusion, the court allowed the petitions and quashed the complaint cases against the petitioner, highlighting the essential requirement of specific averments to establish vicarious liability under Section 141 of the N.I. Act.