Specific averments required to fasten vicarious liability on directors in cheque dishonour prosecutions; omnibus allegations are insufficient.
Proceedings under section 138 of the Negotiable Instruments Act were not defeated merely because the company had been sold out, since dishonour of the cheque and failure to pay within the statutory period remained the operative basis of liability. However, vicarious criminal liability under section 141 could not be fastened on the Managing Director without specific averments that he was in charge of and responsible for the company's business at the relevant time. A bare designation or omnibus allegation was insufficient, and the cognizance order against him was quashed, while the complaint was allowed to continue against the remaining accused.
Issues: (i) Whether proceedings under section 138 of the Negotiable Instruments Act, 1881 could continue against a company said to have already been sold out. (ii) Whether the petitioner, as Managing Director, could be made liable under section 141 of the Negotiable Instruments Act, 1881 in the absence of specific averments that he was in charge of and responsible for the conduct of the company's business.
Issue (i): Whether proceedings under section 138 of the Negotiable Instruments Act, 1881 could continue against a company said to have already been sold out.
Analysis: The liability under section 138 arises from the drawing of the cheque, its dishonour, due notice, and failure to make payment within the statutory period. A subsequent change in the company's status, by itself, does not extinguish the underlying debt or nullify the penal consequence when the cheque was issued and returned unpaid on the relevant facts. The Court applied the principle that unenforceability of a debt is not to be assumed merely because recovery may be affected by corporate circumstances.
Conclusion: The contention that the proceedings must fail merely because the company had been sold out was rejected.
Issue (ii): Whether the petitioner, as Managing Director, could be made liable under section 141 of the Negotiable Instruments Act, 1881 in the absence of specific averments that he was in charge of and responsible for the conduct of the company's business.
Analysis: Vicarious criminal liability under section 141 is not automatic. It requires specific pleadings showing that the person sought to be proceeded against was, at the time of the offence, in charge of and responsible for the conduct of the business of the company. A bare or omnibus assertion is insufficient. The complaint and supporting affidavit did not attribute any specific role to the petitioner in the issuance of the cheques or in the day-to-day conduct of the business, and the material on record instead linked the transaction to other company functionaries. In the absence of the requisite averments, the Magistrate's order taking cognizance against the petitioner could not be sustained.
Conclusion: The petitioner could not be proceeded against under section 141 on the basis of the pleadings and affidavit placed before the Magistrate.
Final Conclusion: The revision succeeded in part. The proceedings were quashed only as against the petitioner against whom the statutory foundation for vicarious liability was missing, while the complaint was permitted to continue against the remaining accused.
Ratio Decidendi: For fastening criminal liability on a director or other officer under section 141 of the Negotiable Instruments Act, the complaint must contain specific averments showing that the person was in charge of and responsible for the conduct of the company's business at the relevant time; a mere designation or omnibus assertion is insufficient.
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