2024 (5) TMI 457 - HC - Indian Laws

Executive Director held vicariously liable for company's cheque dishonour under Section 138 NI Act despite resignation

Delhi HC dismissed petitions challenging summons in dishonour of cheque case under Section 138 read with Section 141 of NI Act. Court held that Executive ... Dishonour of Cheque - vicarious liability of Executive Director - petitioner (resident Indian Director) was having control of the affairs of the company or not - Validity of summons issued by the Trial Court - HELD THAT:- In KK. AHUJA VERSUS VK. VORA [2009 (7) TMI 758 - SUPREME COURT] the Supreme Court highlighted the difference between the position of a Managing Director of the Company vis-à-vis an ordinary Director, as far as Section 141 of the NI Act is concerned, and held that if the accused is the Managing Director of a Joint Managing Director, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company, for the conduct of the business of the company; Law presumes that the Managing Director is in charge of and is responsible to the company for the conduct of its business. In National Small Industries Corporation Limited [2010 (2) TMI 590 - SUPREME COURT] the Supreme Court reiterated that if the accused is a Managing Director or Joint Managing Director, then it is not necessary to make specific averments in the complaint and by virtue of their position, they are liable to be proceeded with. The submission of the petitioner that the petitioner has since resigned, also cannot make the petitioner escape his liability under Section 138 read with Section 141 of the NI Act, at this Stage. In S.P. Mani & Mohan Diary [2022 (9) TMI 846 - SUPREME COURT], the Supreme Court has held that different persons can be in-charge of the company when each of the series of acts of commission and omission essential to complete the commission of offence by the company were being committed. Therefore, “every person who was in charge of and was responsible to the company for the conduct of its business at the time any of the components necessary for the commission of the offence occurred may be “proceeded against”, but may not be “punished” if he succeeds in proving that the offence was committed without his knowledge and despite his due diligence; the burden of proving that remaining on him. There are no merit in the present petitions. The same are dismissed. Issues Involved: 1. Validity of summoning orders under Section 138 of the NI Act.2. Petitioner's role and liability as an Executive Director.3. Petitioner's resignation and its impact on liability.4. Legal presumptions and requirements under Section 141 of the NI Act.Issue 1: Validity of Summoning Orders under Section 138 of the NI ActThe petitions challenge the Orders dated 08.01.2021, 31.01.2022, 04.06.2022, and 23.07.2022 passed by the Trial Court, summoning the petitioner in Complaint Cases filed u/s 138 of the NI Act.Issue 2: Petitioner's Role and Liability as an Executive DirectorThe petitioner contends that she was only a resident Indian Director for incorporation purposes and resigned on 31.12.2020. However, the Court noted that the petitioner was an Executive Director and Promoter of the accused company, making her a 'Key Managerial Personnel' presumed to be in charge of the company's affairs.Section 141 of the NI Act deems every person in charge of and responsible for the conduct of the company's business at the time of the offense to be guilty. The Court referred to Supreme Court judgments, emphasizing that a Managing Director or an Executive Director is presumed to be in charge of the company's affairs.Issue 3: Petitioner's Resignation and Its Impact on LiabilityThe petitioner argued that her resignation and geographical distance from the company's operations absolve her of liability. The Court held that resignation does not absolve liability at this stage, as different persons can be in charge during different acts constituting the offense. The burden of proving lack of knowledge or due diligence lies on the petitioner.Issue 4: Legal Presumptions and Requirements under Section 141 of the NI ActThe Court reiterated that at the stage of issuing process, the Trial Court only needs to be prima facie satisfied with the allegations. Detailed reasons or evidence analysis is not required. The Court highlighted that an Executive Director, as a 'Key Managerial Personnel,' is presumed to be responsible for the company's conduct under Section 141 of the NI Act.Conclusion:The petitions were dismissed, with the Court finding no merit in the arguments presented. The Trial Court's summoning orders were upheld, leaving all submissions open for determination by the Trial Court.