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Issues: (i) Whether the summoning order in a complaint under Section 138 of the Negotiable Instruments Act could be quashed qua independent, non-executive, and nominee directors in the absence of specific averments showing that they were in charge of and responsible for the conduct of the company's business. (ii) Whether the pendency and approval of insolvency resolution proceedings of the company barred continuation of proceedings against the directors.
Issue (i): Whether the summoning order in a complaint under Section 138 of the Negotiable Instruments Act could be quashed qua independent, non-executive, and nominee directors in the absence of specific averments showing that they were in charge of and responsible for the conduct of the company's business.
Analysis: Liability under Section 141 of the Negotiable Instruments Act arises only where the complaint contains the necessary foundation that the accused director was in charge of and responsible for the conduct of the business of the company at the relevant time. The statutory scheme under Section 149 of the Companies Act, 2013 also recognises that independent and non-executive directors ordinarily do not participate in day-to-day management, and their liability is limited. On the pleadings, no specific role was attributed to the independent directors, the non-executive directors, or the nominee director beyond general assertions of participation in meetings and correspondence. Those general averments were insufficient to fasten vicarious criminal liability.
Conclusion: The summoning order was rightly quashed qua the independent directors, the non-executive directors, and the nominee director, and the issue is decided in favour of those petitioners.
Issue (ii): Whether the pendency and approval of insolvency resolution proceedings of the company barred continuation of proceedings against the directors.
Analysis: The bar arising from Section 14 of the Insolvency and Bankruptcy Code, 2016 operates against the corporate debtor and not against natural persons covered by Section 141 of the Negotiable Instruments Act. Since the dishonoured cheques and the complaint related to a period prior to the commencement of corporate insolvency resolution proceedings, the proceedings against the director who was not otherwise entitled to discharge could continue. The insolvency of the company did not furnish a ground for quashing the proceedings against such director.
Conclusion: The proceedings were maintainable against the remaining director, and the issue is decided against that petitioner.
Final Conclusion: The complaint could proceed only against the director against whom sufficient role was alleged, while the summoning order could not survive against the independent, non-executive, and nominee directors.
Ratio Decidendi: In prosecutions under Section 138 read with Section 141 of the Negotiable Instruments Act, criminal liability of directors cannot be presumed from designation alone; specific averments showing that the accused was in charge of and responsible for the company's business are necessary, and insolvency proceedings bar the complaint only against the corporate debtor, not against natural persons.
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