Non-executive director cannot be held liable under Section 138 without specific averments showing involvement in disputed transaction Delhi HC quashed proceedings against a non-executive director under Section 138 NI Act. Court held that for vicarious liability under Section 141, ...
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Non-executive director cannot be held liable under Section 138 without specific averments showing involvement in disputed transaction
Delhi HC quashed proceedings against a non-executive director under Section 138 NI Act. Court held that for vicarious liability under Section 141, specific averments must show how the director was responsible for company's business conduct. The complaint lacked allegations regarding the petitioner's involvement in the loan transaction or any dealings with the complainant. Without specific averments against a non-executive director showing their role in the disputed transaction, the complaint cannot proceed. Case distinguished from previous decisions involving regular directors.
Issues: Challenge to the order issuing summons under Section 138 NI Act based on the role and liability of a non-executive director in a company.
Analysis: The petitioner challenged the order issuing summons, contending that as a non-executive director, he was not involved in the day-to-day administration of the company and had no specific averment against him in the complaint regarding the issuance of the disputed cheque. The petitioner also highlighted that he was not the signatory of the cheque and had no knowledge of the loan transaction. The revision petition was dismissed by the Additional Sessions Judge, citing a previous judgment involving a co-accused. The petitioner argued that the complaint lacked specific allegations against him and emphasized his role as a non-executive director, as evidenced by Form DIR-12 from the Ministry of Corporate Affairs.
The court referred to the Supreme Court's decision in Pooja Ravinder Devidasani v. State of Maharashtra, emphasizing the need for specific averments against a director to establish liability under Section 138 of the NI Act. The court noted that being a director does not automatically imply liability and that only those actively involved in the company's affairs can be held accountable. The court highlighted the distinction between executive and non-executive directors, stating that non-executive directors are not typically involved in day-to-day operations. The court also referenced another Supreme Court ruling, Sunita Palita v. Panchami Stone Quarry, which reiterated the limited role of independent non-executive directors in company affairs.
Ultimately, the court found that the complaint against the petitioner, a non-executive director, lacked specific averments regarding his involvement in the loan transaction or dealings with the complainant. Citing the precedents and the petitioner's role, the court quashed the complaint against the petitioner. The judgment emphasized the necessity of specific allegations against a director to establish liability under Section 138 of the NI Act, especially in cases involving non-executive directors.
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