2023 (4) TMI 706 - HC - Indian Laws

Court quashes complaint under Section 138 NI Act, emphasizes lack of evidence. Order dismissing revision petition set aside.

Yashovardhan Birla Versus CECIL Webber Engineering Ltd. & Ors.

The court quashed the complaint and proceedings against the petitioner (A-3) under Section 138 of the Negotiable Instruments Act, emphasizing the lack of ... Dishonour of Cheque - discharge of legally enforceable debt or not - vicarious liability of director - HELD THAT:- Receiving an ICD of Rs.5 crores was evidently not done under the signatures of the petitioner, nor was the petitioner a signatory to the said cheque which was furnished as part of the promissory guarantee of repayment. There is nothing on the records of the proceedings that there was any communication with the complainant which would have noted an active role of the petitioner in the specific transition that had taken place or the cheque which had been issued in lieu thereof - The dictum of the Hon’ble Supreme Court in Sunita Palita [[2022 (8) TMI 55 - SUPREME COURT]] is, therefore, apposite and applicable in these circumstances. Mere designation as a director cannot import vicarious liability for a dishonoured cheque. Vicarious liability is a specific species and assumes critical importance, particularly when there is criminal liability involved and therefore, cannot be taken lightly. If such an extension of principle of vicarious liability were to remain, it would go against the very grain and texture of what the Hon’ble Supreme Court has held in a catena of decisions. Thus, the following principles emerge: (i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction. (ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company. (iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with. (iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred. (v) If the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with. (vi) If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in the complaint. (vii) The person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases.” otherwise.” Creeping up an escalating liability to Chairpersons of large conglomerates/companies for cheques issued in day-to-day affairs of the business of a company would unfairly and unnecessarily expand the provisions of vicarious liability under the provisions of the Negotiable Instruments Act. Particularly, since no prejudice is caused to the complainant in this case as the signatory of the cheque and admittedly the Managing Director of the accused company is already arrayed as A-2 and is continued to be part of proceedings. It does not need to be reiterated, as has been held by various decisions, including the ones noted above, that the High Courts have the power to quash proceedings under section 138 NI Act qua those accused who do not fall within the rubric of vicarious liability as now defined and refined by various decisions of the Hon’ble Supreme Court. In the considered opinion of this Court, the said complaint and its proceedings would be quashed qua the petitioner herein (arrayed as A-3 in the said complaint). Accordingly, the impugned order dismissing the revision by the petitioner is also set aside - petition disposed off. Issues Involved:1. Quashing of complaint under Section 138 of the Negotiable Instruments Act.2. Setting aside the order dismissing the criminal revision petition.Summary:Issue 1: Quashing of Complaint under Section 138 of the Negotiable Instruments ActThe petitioner sought quashing of the complaint C.C. No.515453/2016 filed under Section 138 read with Sections 141 and 142 of the Negotiable Instruments Act, 1881. The complaint was against M/s Birla Cotsyn (India) Ltd. (A-1), its Managing Director (A-2), and its Directors (A-3 to A-8). The complaint alleged that a cheque issued by the accused company for a business loan of Rs. 5 crores was dishonored due to 'insufficient funds.' The petitioner, A-3, contended he was an independent and non-executive Director, not involved in the day-to-day affairs of the company, and not a signatory to the cheque. The complainant had dropped A-4 to A-8 from the proceedings but continued against A-3, which the petitioner argued was unjustified.The court noted that the petitioner was not a signatory to the cheque, was a non-executive co-Chairman, and had resigned from the company on 29th December 2012. The court found no substantial evidence to show the petitioner's active role in the transaction or the issuance of the cheque. Citing Supreme Court rulings, it emphasized that mere designation as a director does not import vicarious liability for a dishonored cheque. Issue 2: Setting Aside the Order Dismissing the Criminal Revision PetitionThe petitioner's criminal revision petition was dismissed by the Ld. Special Judge (PC Act), CBI-08, Central District, Tis Hazari Court, New Delhi. The court reiterated that vicarious liability under Section 141 of the NI Act requires specific averments showing the accused was in charge of and responsible for the conduct of the business at the relevant time. The court found that the complainant did not provide specific allegations against the petitioner to substantiate his involvement in the company's day-to-day affairs.The court further held that the complainant's decision to drop A-4 to A-8 while continuing against A-3 lacked a legal or factual basis, especially since the petitioner was in a similar position as the other directors. The court referenced several Supreme Court decisions, emphasizing that vicarious liability must be proven with specific evidence and cannot be inferred merely from the designation.Conclusion:The court quashed the complaint and its proceedings against the petitioner (A-3) and set aside the order dismissing the revision petition. The court highlighted the necessity for specific averments and evidence to establish vicarious liability under Section 141 of the NI Act. The petition was disposed of, and any pending applications were deemed infructuous.