2025 (3) TMI 182 - HC - Indian Laws

Directors cannot escape cheque dishonour liability under Section 138/141 NI Act by claiming non-involvement in company affairs

Mahendra Kumar Jain and Monica Jain Versus M/s. Shivaan Exports & Imports

Delhi HC dismissed petition seeking quashing of summons in cheque dishonour case under Section 138/141 NI Act. Petitioners claimed they were not involved ... Dishonour of Cheque - vicarious liability of directors - it is alleged that Trial Court has mechanically passed the summoning orders without appreciating that the petitioners were not involved in the day-to-day affairs of the accused company - violation of principles of natural justice - HELD THAT:- It is well settled that under Section 138/ 141 of NI Act, the complainant is to make the particular averment in the complaint, to the effect that the accused person was the director of the accused company at the relevant time and is responsible for its day-to-day affairs, and therefore is vicariously liable for the offence. Thereafter, the onus of proving that at the relevant time, the accused persons were not the directors of the accused company and were not responsible for its day-to-day affairs, lies upon the accused persons and the same is matter of trial. It must be borne in mind that Section 141 of the NI Act is a penal provision that creates vicarious liability for the accused. The petitioners have been implicated on the premise that they were responsible for the day-to-day affairs of the company. It is also settled that every person, regardless of whether they are in charge of the company during each series of act necessary to constitute the offence under Section 138 read with Section 141 of the NI Act or not, could be proceeded against if they are in charge of the affairs of the company even during one of the omissions’ that is necessary to constitute an offence under Section 138 read with Section 141 of the NI Act. The Court can exercise its jurisdiction only upon unimpeachable and uncontroverted evidence being placed on record, however, in the absence of such evidence, the fact whether the accused person is responsible for the affairs of the accused company becomes a factual dispute, which is to be seen during trial - In a situation where the accused moves the Court for quashing even before the trial has commenced, the Court’s approach should be careful not to prematurely extinguish the case by disregarding the legal presumption supporting the complaint. The factual issues that serve as defences in the case are not appropriate for determination under the powers conferred by Section 482 of the CrPC at this stage. It is well-established that this Court should refrain from expressing any views on disputed questions of fact in proceedings under Section 482 of the CrPC, as doing so could pre-empt the findings of the trial court. Conclusion - Considering the contradicting material on record, the documents adduced by the petitioners cannot be said to be of such sterling and unimpeachable quality that it merits the quashing of the summons and consequential proceedings thereof. It cannot be said that the petitioners are not responsible for the functioning of the accused company or that the complaint is bereft of the requisite ingredients so as to proceed against the petitioners. This Court finds no reason to interfere with the impugned orders - petition dismissed. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment are:1. Whether the petitioners, as former directors of the accused company, can be held vicariously liable under Section 138 of the Negotiable Instruments Act, 1881, for the dishonour of cheques issued by the company.2. Whether the summoning orders issued by the Trial Court against the petitioners were justified, given their resignation from the company prior to the issuance and dishonour of the cheques.3. The applicability of Section 141 of the NI Act concerning vicarious liability and the necessary conditions for quashing proceedings under Section 482 of the CrPC.ISSUE-WISE DETAILED ANALYSIS1. Vicarious Liability of Directors under Section 138 and 141 of the NI ActRelevant legal framework and precedents: The case revolves around the application of Sections 138 and 141 of the NI Act, which deal with the offence of cheque dishonour and the vicarious liability of company directors, respectively. The Court referred to precedents such as S.P. Mani & Mohan Dairy v. Snehalatha Elangovan, emphasizing the requirement for specific averments in the complaint to establish vicarious liability.Court's interpretation and reasoning: The Court highlighted that the primary responsibility of the complainant is to make specific averments in the complaint regarding the accused's role in the company. It is not necessary for the complainant to prove the accused's awareness of every transaction. The burden shifts to the accused to demonstrate their lack of involvement at the trial stage.Key evidence and findings: The petitioners provided resignation documents (FORM NO. DIR-12) to support their claim of non-involvement. However, the Court noted the absence of unimpeachable evidence, such as FORM 32, to conclusively establish the timing and acceptance of their resignations.Application of law to facts: The Court applied the legal principles to determine that the petitioners' resignations and their claimed non-involvement in the company's affairs were factual disputes to be resolved at trial. The Court found that the basic averments in the complaint were sufficient to proceed against the petitioners.Treatment of competing arguments: The respondent argued that the petitioners were actively involved in the company's affairs at the relevant time. The Court recognized these as factual defenses that could not be adjudicated at this stage.Conclusions: The Court concluded that the petitioners could not be absolved of liability at this stage, as the factual disputes regarding their involvement and resignation were matters for trial.2. Justification of Summoning Orders and Quashing ProceedingsRelevant legal framework and precedents: The Court considered the scope of its inherent jurisdiction under Section 482 of the CrPC, referencing decisions like Malwa Cotton and Spinning Mills Ltd. v. Visra Singh Sidhu & Ors., which outline the limited circumstances under which proceedings can be quashed.Court's interpretation and reasoning: The Court emphasized that quashing proceedings is a serious matter and requires unimpeachable evidence showing that no offence is made out against the accused. The Court reiterated that the presence of basic averments in the complaint suffices to issue process, and any factual disputes should be resolved at trial.Key evidence and findings: The petitioners failed to provide incontrovertible evidence to demonstrate that their resignations absolved them of liability. The Court noted that the timing and acceptance of their resignations were not clearly established.Application of law to facts: The Court applied the legal principles to determine that the petitioners' arguments did not meet the threshold for quashing the proceedings. The factual disputes regarding their involvement were deemed inappropriate for resolution under Section 482 of the CrPC.Treatment of competing arguments: The Court acknowledged the petitioners' arguments regarding their resignations but found them insufficient to warrant quashing the proceedings. The Court emphasized that these issues should be addressed during the trial.Conclusions: The Court concluded that the summoning orders were justified, and the petitions for quashing the proceedings were dismissed.SIGNIFICANT HOLDINGSThe Court's significant holdings include:- The primary responsibility of the complainant is to make specific averments in the complaint to establish vicarious liability. The burden then shifts to the accused to demonstrate their lack of involvement at trial.- The presence of basic averments in the complaint suffices to issue process against directors under Sections 138 and 141 of the NI Act. Factual disputes regarding the accused's role and resignation are to be resolved at trial.- Quashing proceedings under Section 482 of the CrPC requires unimpeachable evidence that no offence is made out. The petitioners failed to provide such evidence, and their petitions were dismissed.The Court emphasized the importance of trial for resolving factual disputes and reiterated the limited scope of interference under Section 482 of the CrPC. The petitions were dismissed, and the proceedings were allowed to continue.