2019 (5) TMI 2028 - HC - Indian Laws

Petition to Quash Section 138 Proceedings Dismissed; Allegations of Director's Involvement in Dishonored Cheques to be Tried.

The court dismissed the petition filed by the petitioner, a director of the respondent company, seeking to quash proceedings under Section 138 of the ... Dishonour of cheque - signatory of the cheque - vicarious liability of Directors of the company - HELD THAT:- In Sanjiv Singhal [2014 (10) TMI 1085 - DELHI HIGH COURT] petitioners were independent non-executive Directors. In other two reports, it was held that before making a Director liable under Section 141 averments have to be made to show that he was incharge of or was responsible to the accused company for conduct of its business. In the present case, specific averments have been made in the complaint which cannot be said to be general one line statement in one para to the effect that the Director was responsible for the day to day affairs of the company. The averments made in the complaint, prima facie, exhibit that petitioner was involved in the affairs of the company and had acted in concert with respondent no.3 in respect of the transaction alleged in the complaint. The disputed questions of fact are a matter of trial and cannot be decided in the present petition under Section 482 Cr.P.C. Conclusion - The averments in the complaint prima facie showed the petitioner's involvement in the company's affairs and the transaction in question. The petition is dismissed with cost of ₹20,000/- which shall be paid by the petitioner to the respondent no.1 before the trial court. Issues Presented and Considered:The core legal questions considered in this case are whether the petitioner, as a Director of respondent no.2 company, can be held liable under Section 138 of the Negotiable Instruments Act, 1881 for dishonor of cheques, despite claiming not to be responsible for the day-to-day affairs of the company and not being a signatory of the cheques. The key issue revolves around the interpretation of the responsibilities of a director in relation to the company's business activities.Issue-Wise Detailed Analysis:Relevant Legal Framework and Precedents: The court considered the provisions of Section 138 of the Negotiable Instruments Act, 1881 which deals with dishonor of cheques due to insufficient funds. The court also referred to precedents such as Sudeep Jain Vs. M/s. ECE Industries Ltd., Sanjiv Singhal Vs. ECE Industries Ltd., and National Small Industries Corporation Limited Vs. Harmet Singh Paintal to analyze the liability of directors in such cases.Court's Interpretation and Reasoning: The court analyzed the specific averments made in the complaint, which alleged that the petitioner, along with another director, was responsible for the day-to-day business activities of the company and had authorized the issuance of the cheques in question. The court noted that the petitioner's claim of not being involved in the company's affairs contradicted the averments in the complaint.Key Evidence and Findings: The court highlighted the contents of the complaint, which detailed the roles of the petitioner and the other director in placing purchase orders, issuing cheques, and conducting business transactions on behalf of the company. The court found these specific averments crucial in determining the petitioner's involvement in the alleged offense.Application of Law to Facts: The court applied the legal principle that directors can be held liable under Section 138 of the Act if they are shown to be responsible for the conduct of the company's business. The court emphasized that the disputed questions of fact regarding the petitioner's involvement should be determined during the trial and not in a petition under Section 482 Cr.P.C.Treatment of Competing Arguments: The court considered the petitioner's argument that he was not responsible for the company's day-to-day affairs and cited relevant judgments to support his contention. However, the court found the specific averments in the complaint to be substantial and indicative of the petitioner's involvement in the alleged offense.Conclusions: The court dismissed the petition and imposed costs on the petitioner, emphasizing that the averments in the complaint prima facie showed the petitioner's involvement in the company's affairs and the transaction in question. The court directed the petitioner to pay costs to the complainant before the trial court.Significant Holdings:The court's decision to dismiss the petition and impose costs on the petitioner was based on the finding that the specific averments in the complaint indicated the petitioner's involvement in the company's business activities, warranting further trial proceedings to ascertain the facts.