2022 (11) TMI 855 - SC - Indian Laws

Supreme Court clarifies liability of directors under Section 138 of NI Act, stresses strict compliance.

The Supreme Court upheld the High Court's decision to quash proceedings in a case involving the liability of a director under Section 138 of the NI Act. ... Dishonor of Cheque - vicarious liability of director of a company u/s 141 of NI Act - prosecution under Section 138 of NI Act without the company being arraigned as an accused - Whether a complaint under Section 138 of NI Act would be liable to be proceeded against the director of the company without their being any averments in the complaint that the director arrayed as an accused was in charge of and responsible for the conduct and business of the company? HELD THAT:- A bare perusal of Section 138 and Section 141 of NI Act indicates that Section 138 of the NI Act casts criminal liability punishable with imprisonment for a term that may be extended to two years or with a fine that may extend to twice the amount of the cheque, or with both on a person who issues a cheque towards discharge of a debt or liability in whole or in part and the cheque is dishonoured by the bank on presentation. While Section 141 extends such criminal liability in case of a company to every person who at the time the offence was committed, was in charge of, and was responsible for the conduct of the business of the company. This Court has been firm with the stand that if the complainant fails to make specific averments against the company in the complaint for the commission of an offence under Section 138 of NI Act, the same cannot be rectified by taking recourse to general principles of criminal jurisprudence. Needless to say, the provisions of Section 141 impose vicarious liability by deeming fiction which pre-supposes and requires the commission of the offence by the company or firm. Therefore, unless the company or firm has committed the offence as a principal accused, the persons mentioned in sub-Section (1) and (2) would not be liable to be convicted on the basis of the principles of vicarious liablity - in view of the fact that neither any effort was made by the petitioner at any stage of the proceedings to arraign the company as an accused nor any such circumstances or reason has been pointed out to enable the Court to exercise the power conferred by proviso to Section 142, to condone the delay for not making the complaint within the prescribed period of limitation. There are no hesitation in holding that no error has been committed by the High Court in allowing the Writ Petition filed by the respondent no. 2 and quashing the impugned order and the proceedings - appeal dismissed. Issues Involved:1. Liability of a director for prosecution under Section 138 of the NI Act without the company being arraigned as an accused.2. Requirement of specific averments in the complaint regarding the director's responsibility for the conduct and business of the company.Detailed Analysis:1. Liability of a Director Without the Company Being Arraigned as an Accused:The appeals challenge the High Court's decision that quashed the proceedings on the grounds that the company was not made a party in the complaint. The High Court relied on the Supreme Court's judgments in *Aneeta Hada Vs. Godfather Travels & Tours Pvt. Ltd.* and *S.M.S Pharmaceuticals Ltd. Vs. Neeta Bhalla & Another*, which established that for maintaining prosecution under Section 141 of the NI Act, arraigning the company as an accused is imperative. The Supreme Court affirmed this view, emphasizing that Section 141 of the NI Act extends criminal liability to individuals only if the company, as the principal accused, is also prosecuted. The Court noted that the complaint did not name the company as an accused, which is a prerequisite for prosecuting the director under Section 138 of the NI Act.2. Requirement of Specific Averments in the Complaint:The appeals also addressed whether the complaint must specifically aver that the director was in charge of and responsible for the conduct of the company's business at the time of the offence. The Supreme Court reiterated the necessity of such averments, citing *S.M.S Pharmaceuticals Ltd. Vs. Neeta Bhalla* and *K.K. Ahuja v. V.K. Vora & Anr.*, which clarified that merely holding a designation or office in a company is insufficient to attract liability under Section 141. The complaint must explicitly state that the accused person was responsible for the conduct of the business of the company at the relevant time.In the present case, the complaint lacked such specific averments against the director, rendering it defective. The Court highlighted that the absence of necessary averments cannot be rectified by general principles of criminal jurisprudence or subsequent amendments to the complaint once the limitation period for taking cognizance under Section 142 of the NI Act has expired.Conclusion:The Supreme Court upheld the High Court's decision to quash the proceedings, affirming that:1. Arraigning the company as an accused is essential for prosecuting its director under Section 138 of the NI Act.2. The complaint must contain specific averments that the director was in charge of and responsible for the conduct of the business of the company at the time of the offence.The appeals were dismissed, reinforcing the legal principle that vicarious liability under Section 141 of the NI Act requires strict compliance with the statutory provisions.