2025 (8) TMI 796 - HC - Indian Laws

Director with email proof liable under Section 138 NI Act; mere designation without evidence not enough for summons quashing

The HC held that the petitioner identified as a director with supporting emails was rightly summoned for the dishonour of cheque complaint under Section ... Dishonour of Cheque - essential ingredients for maintaining a Complaint under Section 138 NI Act, are missing qua the Petitioners - role of the Petitioners/directors specified in the complain or not - HELD THAT:- The Legal notice describing him as the Director coupled with the emails, prima facie show his involvement in the affairs of the accused Company and he has been rightly summoned vide the impugned Order. Though the Legal Notice claims her involvement in the affairs of the accused Company, but there is no specific averment to show or explain the manner of her involvement, unlike Juzer where there were emails to show the involvement. As has been held in the case of S.M.S. Pharmaceuticals Ltd. [2005 (9) TMI 304 - SUPREME COURT] that mere designation with nothing more, is not sufficient to show her involvement - it cannot be said that merely on the basis of the bald assertions made in the demand Notice of her being a Director, even if they are taken to form part and parcel of the Complaint, do not ascribe any specific role to the Petitioner/Nishrin and there is no communication with her regarding the business transactions either addressed or forwarded. Thus, the Petitioner/Nishrin cannot be held to be responsible for the affairs of the Accused Company and accordingly, the Summons issued against her is liable to be quashed. The Summoning Order qua Petitioner/Nishrin is quashed - Application allowed. 1. ISSUES PRESENTED AND CONSIDERED Whether the Summoning Orders under Section 138 of the Negotiable Instruments Act, 1881, issued against the Petitioners, can be quashed on the ground that no specific role has been ascribed to them in the alleged dishonour of cheques. Whether mere designation as Directors of the accused Company is sufficient to hold the Petitioners liable under Section 141 of the Negotiable Instruments Act, 1881. Whether the Petitioners were in charge of and responsible for the conduct of the business of the accused Company at the time of the alleged offence, thereby attracting vicarious liability under Section 141. Whether the evidence, including legal notices and email communications, prima facie establishes the involvement of the Petitioners in the day-to-day affairs of the accused Company. The scope and extent of the Magistrate's duty at the stage of issuing summons under Section 138 of the Negotiable Instruments Act. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Quashing of Summoning Orders for Lack of Specific Role Legal Framework and Precedents: The essential ingredients for maintaining a complaint under Section 138 NI Act require that the accused must be shown to have a role in the dishonour of the cheque. Mere collective reference to accused persons without specifying individual roles is insufficient. Relevant precedents emphasize the necessity of specific averments regarding the accused's involvement. Court's Reasoning: The Court examined the pleadings and noted that the Complaint did not specify the role of the Petitioners individually but referred to all accused collectively. However, the Court also considered the evidence beyond the Complaint, including legal notices and emails, to ascertain the Petitioners' involvement. Findings and Application: For one Petitioner, documentary evidence (emails and legal notices) indicated involvement in business transactions, while for the other, no such evidence was found to demonstrate specific involvement beyond designation. Conclusion: Summoning Order against the Petitioner with no specific role ascribed was quashed. Summoning Order against the Petitioner with evidence of involvement was upheld. Issue 2: Liability of Directors under Section 141 NI Act and Requirement of Being in Charge Legal Framework and Precedents: Section 141 NI Act provides that when a company commits an offence, persons in charge and responsible for the conduct of the business at the time are deemed liable. Mere designation as Director is insufficient; there must be specific averment that the accused was in charge and responsible at the relevant time. Key precedents include S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and Aneeta Hada vs. M/s Godfather Travels & Tours Pvt. Ltd. Court's Interpretation: The Court reiterated that liability under Section 141 is contingent upon the accused's role in day-to-day affairs and responsibility for the company's conduct. Managing Directors or Joint Managing Directors are presumed to be in charge, but others must be shown to have such control. Application to Facts: One Petitioner was shown by legal notices and emails to be involved in the company's affairs, satisfying the requirement of being in charge. The other Petitioner was only described as Director in legal notices without further evidence of involvement. Conclusion: Liability was imposed on the Petitioner with demonstrated involvement; the other Petitioner was absolved due to lack of specific role. Issue 3: Role of Evidence Such as Legal Notices and Emails in Establishing Involvement Legal Framework: At the stage of summoning under Section 138 NI Act, the Magistrate may consider the Complaint and evidence led in support, including documentary evidence under the Evidence Act. Court's Reasoning: The Court held that legal notices sent to the accused persons, specifying their roles, and emails evidencing communication related to the transactions, form part of the documentary evidence. These communications can demonstrate involvement in the company's business and transactions. Findings: Emails addressed or copied to one Petitioner regarding delivery, payment, and cheque dishonour indicated active involvement in the company's business dealings. No such communications were addressed to the other Petitioner. Conclusion: Documentary evidence substantiated the involvement of one Petitioner, justifying summons; absence of such evidence for the other Petitioner warranted quashing of summons. Issue 4: Scope of Magistrate's Role in Issuing Summons under Section 138 NI Act Legal Framework and Precedents: The Magistrate must consider the allegations in the Complaint and the evidence led in support to determine whether there is a prima facie case to summon the accused. The threshold is not proof beyond reasonable doubt but sufficient material to proceed. Court's Interpretation: The Court found that the learned Magistrate rightly considered the Complaint, legal notices, and documentary evidence before issuing summons. The presence of prima facie material showing involvement justified the summoning. Conclusion: The Magistrate's exercise of discretion was proper and in accordance with settled legal principles. Issue 5: Treatment of Competing Arguments Regarding Involvement and Liability Petitioners' Arguments: Petitioners contended that they were not involved in the transactions, no specific role was ascribed, and mere designation as Directors does not attract liability. Respondent's Arguments: Respondent asserted that Petitioners were Directors involved in day-to-day affairs, supported by legal notices and emails, and thus liable under Section 141. Court's Treatment: The Court analyzed documentary evidence and found merit in the Respondent's claim regarding one Petitioner, while agreeing with the Petitioners regarding the other due to lack of specific evidence. Conclusion: Balanced approach applied; liability imposed only where supported by evidence of involvement. Final Conclusions: Summoning Order under Section 138 NI Act against the Petitioner with demonstrated involvement in the accused Company's affairs is upheld. Summoning Order against the Petitioner with no specific role or evidence of involvement is quashed. Directors can be held liable under Section 141 NI Act only if shown to be in charge and responsible for the company's conduct at the time of the offence. Documentary evidence such as legal notices and emails are relevant and admissible to establish prima facie involvement at the summoning stage. The Magistrate's discretion in issuing summons must be exercised on the basis of Complaint and supporting material to determine prima facie case.