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

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.

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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.

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