TaxTMI 
TaxTMI 
2011 (6) TMI 943
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....ition Nos. 2035 to 2041/2010 the complaint has been filed by the complainant against M/s. Vedic Cotton Limited. It is the allegation of the complainant that the Petitioner herein is a Director of accused No. 1. However, it is disputed by the Petitioner contending that the Petitioner had resigned on 11th September 2008. However, in view of the view that I am taking in the present matter, I do not find it necessary to go into that controversy. 4. The basic contention of the Petitioners is that the Petitioners are sought to be implicated in the complaint by invoking provision of vicarious liability under Section 141 of the N.I. Act. It is contended that the averments necessary for fastening the Petitioners with criminal liability under Section 141 as mandated by the Apex Court in various pronouncements have not been made in the complaint and, as such, the complaint is liable to be quashed. 5. Shri Kotwal, learned Counsel for the Petitioners submits that merely alleging that the Director was in-charge of the affairs of the company at the relevant time is not sufficient enough to fasten a vicarious liability upon a Director of the company unless a specific role of such a Director ....
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....y, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this Sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence: Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter. (2) Notwithstanding anything contained in Sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, ....
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....ors of a Company. Nothing is oral. What emerges from this is that the role of a Director in a company is a question of fact depending on the peculiar facts in each case. There is no universal rule that a Director of a company is in charge of its everyday affairs. We have discussed about the position of a Director in a company in order to illustrate the point that there is no magic as such in a particular word, be it Director, Manager or Secretary. It all depends upon respective roles assigned to the offices in a company. A company may have Managers or Secretaries for different departments, which means, it may have more than one Manager or Secretary. These officers may also be authorized to issue cheques under their signatures with respect to affairs of their respective departments. Will it be possible to prosecute a Secretary of Department-B regarding a cheque issued by the Secretary of Department-A which is dishonoured? The Secretary of Department-B may not be knowing anything about issuance of the cheque in question. Therefore, mere use of a particular designation of an officer without more, may not be enough by way of an averment in a complaint. When the requirement in Section 1....
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.... and was not responsible for the conduct of the business of the company at the relevant time, will not be liable under the provision. The liability arises from being in charge of and responsible for conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation of office in a company. Conversely, a person not holding any office or designation in a Company may be liable if he satisfies the main requirement of being in charge of and responsible for conduct of business of a Company at the relevant time. Liability depends on the role one plays in the affairs of a Company and not on designation or status. If being a Director or Manager or Secretary was enough to cast criminal liability, the Section would have said so. Instead of "every person" the section would have said "every Director", Manager or Secretary in a Company is liable" ...etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to connected with the commission of a crime at the relevant time have been su....
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....will enable him to meet the case at the trial. 20. In view of the above discussion, our answers to the questions posed in the Reference are as under: (a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied. (b) The answer to question posed in sub-para (b) has to be in negative. Merely being a Director of a company is not sufficient to make the person liable under Section 141 of the Act. A Director in a company cannot be deemed to be in charge of and responsible to the company for conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases. (c) The answer to qu....
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.... as such, the proceedings were quashed. An appeal was carried to the Apex Court and in the said appeal, the Apex Court observed thus: 8. To launch a prosecution, therefore, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the Directors are in-charge and responsible for the conduct of the business of the company. The description should be clear. It is true that precise words from the provisions of the Act need not be reproduced and the court can always come to a conclusion in facts of each case. But still, in the absence of any averment or specific evidence the net result would be that complaint would not be entertainable. (emphasis supplied) 12. It can, thus, clearly be seen that the Apex Court in unequivocal terms has held that to launch a prosecution against the alleged Director there must be a specific allegation in the complaint as to the part played by him in the transaction. It has been held that there should be clear and unambiguous allegation as to how the Director is in charge and responsible for the conduct of the bu....
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....and things, as the company is authorized to exercise and do. A company, though a legal entity, can act only through its Board of Directors. The settled position is that a Managing Director is prima facie in-charge of and responsible for the company's business and affairs and can be prosecuted for offences by the company. But insofar as other Directors are concerned, they can be prosecuted only if they were in-charge of and responsible for the conduct of the business of the company. 37. A combined reading of Sections 5 and 291 of Companies Act, 1956 with the definitions in Clauses (24), (26), (30), (31) and (45) of Section 2 of that Act would show that the following persons are considered to be the persons who are responsible to the company for the conduct of the business of the company: (a) the Managing Director(s); (b) the whole-time Director(s); (c) the Manager; (d) the Secretary; (e) any person in accordance with whose directions or instructions the Board of Directors of the company is accustomed to act; (f) any person charged by the Board of Directors with the responsibility of complying with that provision; Pro....
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....there is no deemed liability of a Director in such cases. 16. It can, thus, be seen that in the said case also the Apex Court has held that in so far as Managing Director and Joint Managing Director or a Director or a Officer who is signatory to the cheque is concerned, it is not necessary to make a specific averment. However, in so far as other persons are concerned, it has been held that such a person can be liable, if he is in charge of and responsible for the conduct of the business of the company at the relevant time. It has been further held that this has to be averred as a fact as there is no deemed liability of a Director in such cases. 17. The perusal of paragraph-13 of the said judgment in National Small Industries Corpn. Ltd. (supra) would reveal that it has been, in clear terms, spelled out that a bald cursory statement in a complaint that the Director is in charge of an responsible to the company for the conduct of the business of the company without anything more as to the role of the Director is not sufficient enough. It has been further held that the complaint should spell out as to how and in what manner the person who is sought to be fastened with the liabil....
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....e and are in charge of and responsible for the conduct of business of Accused No. 1 and are also looking after the day to day affairs of Accused No. 1. It is further submitted that Accused No. 2 to 5 with Accused No. 1 are liable to be prosecuted and / or connived in the commission of the present offence, in their capacity as a Directors/signatory of the said private limited company. It can, thus, be seen that like the averments in the case of National Small Industries Corpn. Ltd. (supra) in the present cases also there is averment that accused Nos. 2 to 5 on behalf of accused No. 1 have approached the complainant with a request for trade finance facility and, accordingly, the said facility was granted by the complainant. A general averment that all the accused Nos. 2 to 5 were in charge of and responsible for the conduct of the business of accused No. 1 and that they were looking after the day to day affairs of the Company has been made in the complaint. However, no specific role has been attributed to the Directors as to what part they take in day to day management of the company and as to how they were personally involved in the transactions in question. I find that the averm....