2022 (10) TMI 1268 - HC - Indian Laws

Company director with 5% shares held liable under Section 148 after Section 138 conviction despite minimal shareholding

Uttarakhand HC dismissed application challenging vicarious liability of company director under Negotiable Instruments Act. Director holding 5% shares was ... Dishonor of the cheque - determination of drawer of cheque - Vicarious liability of Director - Director holding 5% shares in the company, can be deemed a 'drawer' under the Negotiable Instruments Act, particularly in the context of Section 148 or not? - HELD THAT:- This Court is of the view, that in the absence of there being a challenge being given to the summoning order, to the principal complaint proceedings, in the light of implications of Section 141 of the Negotiable Instruments Act, hence under the determination, which has been made by the judgement dated 22nd April 2022, for all practical purposes would be treated as to be a drawer. This Court is of the considered view, that when the principal proceedings was itself under Section 138, to be read with Section 141 of the Negotiable Instruments Act and particularly, when the issue about his status as being a Director was not under challenge or put to determination, when the summoning order was issued by the proceeding where the complaint case, as it was drawn after the judgement of conviction, the applicant, for all practical purposes would be held to be a drawer to attract the provisions of Section 148 of the Negotiable Instruments Act. Conclusion - The applicant, for all practical purposes, would be held to be a drawer to attract the provisions of Section 148 of the Negotiable Instruments Act. The appellate court's order for a 20% deposit was upheld. Application dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the applicant, as a Director holding 5% shares in the company, can be deemed a 'drawer' under the Negotiable Instruments Act, particularly in the context of Section 148.Whether the appellate court's order to deposit 20% of the penalty amount under Section 148 of the Negotiable Instruments Act is valid when the applicant challenges his status as a 'drawer'.How the legal interpretations of Sections 138, 141, and 148 of the Negotiable Instruments Act apply to the applicant's case.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Status as a 'Drawer'Relevant legal framework and precedents: The court examined Sections 138, 141, and 148 of the Negotiable Instruments Act. Section 138 pertains to the dishonor of cheques, Section 141 deals with offenses by companies, and Section 148 involves the appellate court's power to require a deposit of part of the penalty amount. The court also considered precedents, including the cases of N. Harihara Krishnan Vs. J. Thomas and Aneeta Hada Vs. M/s Godfather Travels & Tours Pvt. Ltd.Court's interpretation and reasoning: The court reasoned that since the applicant was a Director with 5% shares and an authorized signatory, he could be deemed a 'drawer' under the Act. The applicant's failure to challenge his status during the initial proceedings reinforced this interpretation.Key evidence and findings: The applicant's role as a Director and his participation in the proceedings without contesting his status were pivotal. The court noted that the applicant did not dispute the summoning order or his role when the complaint was filed.Application of law to facts: The court applied Section 141 to establish that the applicant, as a person in charge of the company, was liable under Section 138. The court held that the applicant's status as a drawer was valid for the purposes of Section 148.Treatment of competing arguments: The applicant argued that he should not be considered a drawer based on the N. Harihara Krishnan case. However, the court found this judgment inapplicable as it did not address Section 148. The respondent's reliance on Aneeta Hada was favored due to its broader interpretation of who can be considered a drawer.Conclusions: The court concluded that the applicant was a drawer under the Negotiable Instruments Act and upheld the appellate court's order for a 20% deposit of the penalty amount.Issue 2: Validity of the Appellate Court's Order under Section 148Relevant legal framework and precedents: Section 148 of the Negotiable Instruments Act empowers the appellate court to order a deposit of a minimum of 20% of the fine or compensation awarded by the trial court during an appeal.Court's interpretation and reasoning: The court interpreted Section 148 as discretionary, allowing the appellate court to safeguard the complainant's interests by requiring a deposit. The legislative intent was to ensure that appeals do not unduly delay compensation.Key evidence and findings: The court found that the applicant's status as a drawer was not contested at the appropriate time, which justified the appellate court's use of Section 148.Application of law to facts: The court applied the discretionary power under Section 148 to affirm the appellate court's decision, emphasizing the need to protect the complainant's rights during the appeal process.Treatment of competing arguments: The applicant's argument against the deposit was dismissed due to the absence of any challenge to his status as a drawer in earlier proceedings. The court found no fault in the appellate court's order.Conclusions: The court held that the appellate court's order under Section 148 was valid and necessary to achieve the legislative objective of the Negotiable Instruments Act.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'The applicant, for all practical purposes, would be held to be a drawer to attract the provisions of Section 148 of the Negotiable Instruments Act, for the reasons already assigned above.'Core principles established: The judgment reinforced the principle that directors and authorized signatories of a company can be deemed 'drawers' under the Negotiable Instruments Act. It also affirmed the appellate court's discretion under Section 148 to require a deposit during appeals.Final determinations on each issue: The applicant was deemed a drawer, and the appellate court's order for a 20% deposit was upheld. The C-482 Application was dismissed for lacking merit.