2022 (8) TMI 870 - HC - Indian Laws

Directors' Liability under Negotiable Instruments Act Upheld

The Court dismissed the application seeking to quash the order of process issuance under Section 138 read with Section 141 of the Negotiable Instruments ... Dishonor of Cheque - Vicarious liability - whether applicants were either in-charge of or responsible to the company for the conduct of its business at the time of the commission of the alleged offences? - HELD THAT:- The legal position as regards the nature of the liability of the persons who are sought to be prosecuted by invoking the provisions contained in section 141 of the Act, 1881 is fairly crystallized. Under section 141 of the Act, 1881 when an offence is committed by the company, apart from the company, every person who at the time of the commission of the offence was in-charge of and responsible to the conduct of the business of the company shall also be deemed to be guilty of the offence. There are a plethora of judgments governing the aspect of the liability of the Directors and/ or officers of the company who are impleaded by invoking section 141 of the Act, 1881. It would be superfluous to make a reference to all the judgments relied upon by the learned counsel for the applicants as the field is substantially covered by two pronouncements of Supreme Court. In exercise of inherent jurisdiction under section 482 of the Code, the High Court is required to approach the issue in two stages. First, whether there are basic averments in the complaint to demonstrate that the applicant was in-charge of and responsible for the conduct of the business of the company at the time of commission of the offences. If, at this first stage, the High Court is satisfied about the existence of adequate averments to make out the liability under section 141 of the Act, 1881, it would be within its right in refusing to embark upon further inquiry and exercise the discretion. Second, in a given case, the High Court may proceed to probe further and examine whether despite the existence of basic averments, the complaint qua the applicants/Director or other officers of the company deserves to be quashed on account of peculiar circumstances. A profitable reference in this context can be made to the case of ASHUTOSH ASHOK PARASRAMPURIYA & ANR. VERSUS M/S. GHARRKUL INDUSTRIES PVT. LTD. & ORS. [2021 (10) TMI 431 - SUPREME COURT]. In the said case, these were averments in the complaint to the effect that all the Directors of the company were responsible to the business of the company and they were involved in the business of the company and responsible for all the affairs of the company. In the backdrop of such averments, the Supreme court declined to interfere with the order of High Court dismissing the application under section 482 of the Code. The applicants have not succeeded in making out a case that despite existence of the basic averments in the complaint, there are peculiar circumstances, supported by material of unimpeachable character to demonstrate that they were not in-charge of or responsible to the conduct of the business of company at the time of the commission of the offences. Thus, the application deserves to be dismissed. Application dismissed. Issues Involved:1. Quashing of the order of issue of process under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881.2. Determination of the liability of Directors who were neither signatories to the consent terms nor the dishonored cheques.3. Examination of the basic averments in the complaint regarding the Directors' responsibility for the conduct of the company's business.4. Evaluation of the applicants' claim that they had resigned from the company before the commission of the alleged offenses.Issue-wise Detailed Analysis:1. Quashing of the Order of Issue of Process:The application under Section 482 of the Code of Criminal Procedure, 1973 seeks to quash the order dated 26th June 2019, issued by the Metropolitan Magistrate for an offense punishable under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881. The applicants argued that they were not responsible for the company's conduct at the time of the alleged offenses, and the Magistrate issued the process mechanically without proper appreciation of the facts.2. Determination of the Liability of Directors:The applicants contended that they were neither signatories to the consent terms nor the dishonored cheques and had resigned from their positions as Directors. The Court examined whether the complaint contained specific averments that the applicants were in charge of and responsible for the conduct of the company's business. The Court referred to precedents, including *S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla* and *Gunmala Sales Private Limited vs. Anu Mehta*, emphasizing that liability arises from conduct, act, or omission, not merely from holding a position.3. Examination of Basic Averments in the Complaint:The Court found that the complaint contained adequate averments to make out the liability under Section 141 of the Act. The complaint stated that the applicants were involved in the company's day-to-day operations and were responsible for its business conduct. The Court noted that the applicants could not draw much mileage from the fact that they were not signatories to the consent terms or the dishonored cheques, as the complaint sufficiently alleged their involvement and responsibility.4. Evaluation of Applicants' Resignation Claim:The applicants claimed they had resigned in October 2018, but the Court found no unimpeachable evidence to substantiate this claim. The Court observed that the applicants' reply to the statutory notice did not mention their resignation, and they contested the liability on merits instead. The Court concluded that the applicants failed to demonstrate that they were not responsible for the company's conduct at the time of the alleged offenses.Conclusion:The Court dismissed the application, finding that the complaint contained sufficient averments to make out a prima facie case against the applicants under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881. The Court held that the applicants did not provide unimpeachable evidence to prove their lack of responsibility for the company's conduct at the relevant time. The application was dismissed with no costs.