2024 (9) TMI 1239 - HC - Indian Laws

Non-executive director cannot be held liable under Section 138 without specific averments showing involvement in disputed transaction

Ms. Seema Asthana Versus Sh. Jaideep Arora

Delhi HC quashed proceedings against a non-executive director under Section 138 NI Act. Court held that for vicarious liability under Section 141, ... Dishonour of Cheque - Vicarious liability of non-executive director in a company - HELD THAT:- It is not disputed that the Petitioner herein is a Non-Executive Director of ATT. While dealing with the nature of averments that are required against a Non-Executive Director while filing a complaint under Section 138 NI Act, the Apex Court in POOJA RAVINDER DEVIDASANI VERSUS STATE OF MAHARASHTRA & ANOTHER [2014 (12) TMI 1070 - SUPREME COURT] has observed 'the law laid down by this Court is that for making a Director of a company liable for the offences committed by the company under Section 141 of the NI Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the company.' The Coordinate Bench of this Court while dealing with the case of Ms. Poonam Singh, who is accused No. 4 in the complaint filed by the Respondent, has not seen as to whether Ms. Poonam Singh is a Non-Executive Director or a regular Director. There is no discussion in the judgment of the Coordinate Bench regarding this aspect - In the present case it was specifically pleaded that the Petitioner is a non-executive Director and is not responsible for the day-to-day affairs of the company. Form DIR-12, which has been placed and the veracity of which has not been denied, shows that the Petitioner is a non-executive director. In the entire complaint there is no averment as to whether the Petitioner herein was involved in the loan transaction or not and as to whether the Complainant has dealt with the Petitioner at any point of time or not. This Court is of the opinion that the case of the Petitioner herein is distinguishable from that of Ms. Poonam Singh inasmuch as the Petitioner herein is a Non-Executive Director and without any specific averment against the Petitioner herein in the complaint filed by the Respondent herein as to whether the Petitioner herein is involved in the loan transaction or not and as to whether the Complainant has dealt with the Petitioner at any point of time or not, the complaint against the Petitioner herein cannot be permitted to continue. Petition disposed off. 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.