2024 (9) TMI 1242 - HC - Indian Laws

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

Rahul Vijayvargia Versus The State Of Delhi And Ors.

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 ... Dishonour of Cheque - petitioner was not the Director of the Company when the loan was taken - vicarious liability of the petitioner - HELD THAT:- The criminal complaint has been filed under Section 138 read with Section 141 of the NI Act. The petitioner has been impleaded in the capacity of Director of the accused company. The present petition is accompanied by Form No. DIR-11 and DIR-12. The said documents i.e. DIR-11 and DIR-12 indicate that the petitioner was appointed as an Additional Independent Non-Executive Director on 26.02.2020 and that he resigned on 08.12.2021. The issue whether requisite allegations are to be made against Directors and more particularly against the Directors who are Additional Independent Non-Executive, has come up before the Supreme Court in a catena of decisions. In POOJA RAVINDER DEVIDASANI VERSUS STATE OF MAHARASHTRA & ANOTHER [2014 (12) TMI 1070 - SUPREME COURT] the Supreme Court, while following the ratio of the decision in NATIONAL SMALL INDUSTRIES CORPN. LTD. VERSUS HARMEET SINGH PAINTAL [2010 (2) TMI 590 - SUPREME COURT] made the observations with regard to fastening vicarious liability on Directors who are not in charge of day-to-day affairs of the company. Coming to the facts of the present case, a reading of the complaint would show that the same is bereft of any specific allegations as to how being an Additional Independent Non-Executive Director, the petitioner (arrayed as accused No.4 in the complaint) was incharge of day-to-day affairs and conduct of the business of the accused company. The complaint itself is accompanied by the Master Data of the company, which did not reflect the name of the petitioner as a Director. Even if the Annual Report for the Financial Year 2020-21 of respondent No. 3 is to be considered, it brings to the notice the fact that during all the Nine (9) Board Meetings held during the Financial Year 2020-21 and of the Annual General Meeting held on 31.12.2020, none of it were attended by the petitioner which goes to show that he was not involved in day-to-day affairs of the accused Company. Thus, it is the conceded case of the complainant that the petitioner was not the Director on the relevant date. The case of the petitioner squarely falls in the ratio of the aforenoted binding precedents. In the totality of the facts and circumstances, the petitioner cannot be made responsible for the dishonour of cheques, and the continuation of the criminal complaint against him would be nothing but an abuse of the process of law. The criminal complaint filed against the petitioner is quashed - Petition allowed. 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.