2022 (11) TMI 216 - HC - Indian Laws

High Court quashes summoning order against Independent Director in NI Act case, citing lack of specific averments

Preeti Versus State & Anr.

The High Court of Delhi quashed the summoning order against the petitioner, an Independent/Non-Executive Director, in a case under Section 138/141 of the ... Dishonor of Cheque - vicarious liability of an independent director - active role played in the transactions or business of the company or in any day to day affairs of the company - specific allegations against the petitioner to show as to how the petitioner had knowledge or was involved in the transaction alleged in the complaint, present or not - HELD THAT:- Coming to the facts of the present case, a perusal of Form No. DIR-12, dated 16.01.2017, of the accused company K.S. Oils Limited shows that the petitioner was an independent director at the time of commission of the offence. In view of Section 141 of Negotiable Instruments Act, 1881 and Section 149 of Companies Act, 2013 petitioner could have been held vicariously liable only if it was shown that she was incharge of and was responsible for the conduct of the business of the company at the time of commission of offence, and not otherwise. The general allegations have been made against all the directors of the accused company. Such mere allegation or bald assertion may be sufficient to implicate the Managing directors as well as those who are signatories to cheque, but not the other directors or persons, especially independent or non-executive directors, as held in catena of judgments. In fact, it has come to the knowledge of this Court that in reference to the same complaint case and summoning order, two other directors of the accused company namely Sanjay Aggarwal, arrayed as accused no. 5 in complaint, and Sourabh Garg, arrayed as accused no. 6 and 11 in complaint, had also filed petitions i.e., Crl. M.C. 5852/2019 and Crl. M.C. 5799/2019 before this Court seeking quashing of summoning order qua them. In these petitions, a Coordinate bench of this Court vide order dated 16.08.2022 has quashed the summoning order with regard to the petitioners therein, on the ground that they were not even the directors in the accused company at the relevant point of time and had resigned even before the agreements were entered into between the accused company and complainant - In absence of any specific averments or allegations carving out a specific role attributable to petitioner in relation to conduct of business of accused company, merely making bald statements that all the accused persons/directors were incharge and responsible for the day to day affairs of the company, does not suffice to make the petitioner herein vicariously liable for dishonouring of the cheques not signed by her and there being material on record to show that she was an independent director in the company. In S.M.S. Pharmaceuticals Ltd. [2005 (9) TMI 304 - SUPREME COURT], and affirmed recently in Sunita Palita [2022 (8) TMI 55 - SUPREME COURT] by the Apex Court, liability depends on the role one plays in the affairs of a company and not on designation or status alone. As also held by the Apex Court inM/S. PEPSI FOODS LTD. & ANR VERSUS SPECIAL JUDICIAL MAGISTRATE & ORS [1997 (11) TMI 518 - SUPREME COURT], summoning an accused person cannot be resorted to as a matter of course and the order must show application of mind. The impugned order is quashed to the extent of issuing of summons to the present petitioner for alleged commission of the offence punishable under Section 138 of the Negotiable Instruments Act, 1881 - petition allowed. Issues Involved:1. Quashing of the summoning order.2. Vicarious liability of an Independent/Non-Executive Director under Section 138/141 of the Negotiable Instruments Act, 1881.3. Specific averments required in the complaint to fasten liability on directors.Detailed Analysis:1. Quashing of the Summoning Order:The petitioner sought the quashing of the summoning order dated 28.11.2018 issued by the Metropolitan Magistrate-04, Patiala House Courts, Delhi. The petitioner argued that the summoning was done mechanically without due consideration of the facts, and summoning an accused is a serious affair requiring due application of mind. The court referred to the case of *Mehmood UI Rehmand v. Khazir Mohammad Tunda* (2016)1 SCC(Cri) 124 to emphasize the necessity of careful scrutiny before issuing summons.2. Vicarious Liability of an Independent/Non-Executive Director:The petitioner, an Independent/Non-Executive Director, argued that she had no role in the transactions or day-to-day affairs of the company and was not a signatory to any of the cheques in question. The court examined the legal framework under Section 141 of the Negotiable Instruments Act, 1881, and Section 149 of the Companies Act, 2013. The court highlighted that vicarious liability under Section 141 arises only if the director was in charge of and responsible for the conduct of the business at the relevant time. The court cited several precedents, including *S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla* (2005) 8 SCC 89, which clarified that merely holding a designation is not sufficient to fasten liability; specific roles and responsibilities must be demonstrated.3. Specific Averments Required in the Complaint:The court scrutinized the complaint and found that it contained general allegations against all directors without specifying the role of the petitioner. The court emphasized that specific averments showing how and in what manner the director was responsible for the conduct of the business are essential. The court referred to *National Small Industries Corp. Ltd. v. Harmeet Singh Paintal* (2010) 3 SCC 330 and *Anita Malhotra v. Apparel Export Promotion Council* (2012) 1 SCC 520, which reiterated the need for clear and unambiguous allegations to hold directors vicariously liable.Conclusion:The court concluded that the complaint did not contain specific allegations against the petitioner to show her involvement in the day-to-day affairs of the company. The court noted that general allegations might suffice for managing directors or signatories to the cheques but not for independent or non-executive directors. Consequently, the court quashed the summoning order dated 28.11.2018 to the extent it pertained to the petitioner, thereby allowing the petition.Summary:The High Court of Delhi quashed the summoning order against the petitioner, an Independent/Non-Executive Director, in a case under Section 138/141 of the Negotiable Instruments Act, 1881. The court held that the complaint lacked specific averments detailing the petitioner's role in the conduct of the company's business, which is essential to fasten vicarious liability. The court emphasized that merely holding a designation is insufficient for liability; specific involvement in the company's affairs must be demonstrated.