Additional Independent Non-Executive Director not liable under Section 138 NI Act without day-to-day involvement

The Delhi HC quashed a criminal complaint under Section 138 read with Section 141 of the NI Act against a petitioner who served as Additional Independent Non-Executive Director. The petitioner was appointed on 26.02.2020 and resigned on 08.12.2021, but was not a director when the loan was taken. The complaint lacked specific allegations showing how the petitioner was in charge of day-to-day affairs. Company records showed the petitioner's name was not reflected as director and he attended none of the nine board meetings during FY 2020-21. Following SC precedents, the HC held that vicarious liability cannot be fastened on directors not involved in day-to-day operations, making continuation of proceedings an abuse of process.

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Issues Involved:
1. Validity of the summoning order under Section 138 read with Section 141 of the Negotiable Instruments Act.
2. Petitioner's liability as an Additional Independent Non-Executive Director.
3. Compliance with legal requirements for vicarious liability under Section 141 of the NI Act.
4. Specificity of allegations against the petitioner in the complaint.

Detailed Analysis:

1. Validity of the Summoning Order under Section 138 read with Section 141 of the Negotiable Instruments Act:
The petitioner challenged the order dated 27.09.2022, passed by the Judicial Magistrate, First Class, in Complaint Case No. 1739/2022. The complaint was instituted under Section 138 read with Section 141 of the NI Act against a company and its directors, including the petitioner. The petitioner argued that the summoning order was issued mechanically without proper appreciation of facts and application of law.

2. Petitioner's Liability as an Additional Independent Non-Executive Director:
The petitioner contended that he was appointed as an Additional Independent Non-Executive Director on 26.02.2020 and resigned on 08.12.2021, before the cheques were dishonoured on 22.04.2022. The petitioner was not involved in the company's day-to-day affairs and was not a signatory to the dishonoured cheques. The court noted that the documents (DIR-11 and DIR-12) indicated the petitioner's resignation before the cheque dishonour date.

3. Compliance with Legal Requirements for Vicarious Liability under Section 141 of the NI Act:
The court referred to several Supreme Court judgments, including Pooja Ravinder Devidasani v. State of Maharashtra and Anr. and National Small Industries Corp. Ltd. v. Harmeet Singh Paintal. These judgments emphasized that vicarious liability under Section 141 of the NI Act requires specific allegations showing how the director was in charge of and responsible for the company's day-to-day affairs. The court reiterated that merely being a director does not make one liable under the NI Act.

4. Specificity of Allegations against the Petitioner in the Complaint:
The court found that the complaint lacked specific allegations against the petitioner regarding his role in the company's day-to-day affairs. The complaint only contained generalized statements without detailing the petitioner's involvement in the conduct of the company's business. The court emphasized that such generalized averments are insufficient to fasten criminal liability under the NI Act.

Conclusion:
The court concluded that the petitioner, being an Additional Independent Non-Executive Director and not involved in the day-to-day affairs of the company, could not be held liable for the dishonour of cheques. The continuation of the criminal complaint against the petitioner would be an abuse of the process of law. Consequently, the petition was allowed, the criminal complaint was quashed, and the summoning order was set aside.

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