AI Drafter 
TaxTMI 
TaxTMI 
2020 (1) TMI 340
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.... Har Sarup Bhasin and Mr. Nikit Rastogi and the petitioner herein arrayed as the respondent no.6 to the said complaint case. 2. The complainant i.e. the respondent through the complaint has alleged that the accused no.1 i.e. M/s Dinesh Oil Limited (hereinafter referred to as the accused company) had availed the services of the complainant i.e. the respondent by way of sale of 250 metric tones of Crude Palm Oil (Edible Grade) in bulk vide Bill of Lading No.DUM/KDL-02 dated 17.03.2016 at the rate of Rs. 43,381.10/- per MT which were supplied by the respondent to the accused company pursuant to an agreement for procurement services dated 07.01.2016 executed between the parties. The complainant had averred in the complaint that the accused company was engaged in the business of trading and manufacturing edible/ vegetable oils and other agricultural commodities and that the accused no.2 was the Managing Director and the Whole Time Director of the accused company and that the accused nos. 3 to 7 are the whole time Directors of the accused No.1 the accused company and that the accused nos. 2 to 7 are incharge and responsible for the conduct of the day to day business of the accused No.....
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....Court is of the considered opinion that prima facie case punishable u/s 138 of NI Act is made out against the accused. I, therefore, take cognizance of the offence u/s 138 of NI Act, 1881. Issue summons to the accused on filing of PF/RC/AD/ speed post, returnable on 23.06.2017. Steps be taken within three weeks." 5. The petitioner vide the present petition submits that grave miscarriage of justice has been caused to him by way of his having been summoned mechanically. The petitioner further submits that the summons were only issued at the address of the accused no.1 i.e. the accused company and not at his address i.e. 117/64, Q-Block, Sharda Nagar, Naveen Nagar, Bilhaur, Kanpur, Uttar Pradesh; that the petitioner had joined the accused No.1 company as an Independent, Non-executive Director and that he was never involved in the day to day affairs of the company at any point in time. The petitioner further submits that on 27.06.2016, he had filed a resignation letter under Section 168 of the Companies Act, 2013 and subsequently ceased to be an Independent Director of the accused company. 6. The petitioner has further submitted that he has not signed the cheque....
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....Court in "Gunmala Sales Private Limited vs. Anu Mehta and Ors" (2015)1 SCC 103and in "Pooja Ravinder Devidasani vs. State of Maharashtra (2014) 16 SCC 1 to contend to similar effect. 10. The petitioner has further submitted that the averments made against him are merely general, vague and bald and that the complaint is bereft of any specific averment to show as to how and in what manner the petitioner is responsible for the business of the accused no.1 company and that thus, no criminal liability can be fastened on the petitioner. The petitioner further submits that even the accused company through its reply to the demand notice had admitted that the role of the petitioner was that of an Independent Director who was not responsible, nor aware of the day to day activities. 11. Through the reply submitted on behalf of the respondent, it has been submitted that the petitioner has withheld material facts and that the complainant i.e. the respondent had specifically averred in the criminal complaint that the accused nos. 2 to 7 which included the petitioner herein were incharge and responsible for the day to day conduct of the business of the accused company. The respondent has fu....
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....r being an Independent, Non-Executive Director of the accused company, he was not involved in the day to day affairs of the company at any point of time and the petitioner not being a signatory to the said cheques and the said cheques having not been issued to his knowledge, the petitioner cannot be made liable for the dishonoring of the cheques in question and that the petitioner had also resigned from the accused company on 27.06.2016 vide a resignation letter under Section 168 of the Companies Act, 2013. 15. Reliance was placed on behalf of the petitioner in relation to the contention that the Independent, Non-Executive Directors, cannot be held to be involved in the day to day affairs of the company on the verdict of this Court in "Bhardwaj Thirvenkata Venkatavaraghavan Vs. Ashok Arora and Ors." 2017 SCC OnLine Del 7416 with specific reference to paragraphs 3 & 14, which read to the effect:- "3. The two-fold contentions of learned counsel for the petitioner are that the petitioner is the independent nonexecutive nominee director and thus cannot be fastened with the vicarious liability to pay the dues of the company, and that the petitioner resigned from the company ....
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.... material time that person shall have been at the helm of affairs of the company, one who actively looks after the day-to-day activities of the company and is particularly responsible for the conduct of its business. Simply because a person is a Director of a company, does not make him liable under the NI Act. Every person connected with the Company will not fall into the ambit of the provision. Time and again, it has been asserted by this Court that only those persons who were in charge of and responsible for the conduct of the business of the Company at the time of commission of an offence will be liable for criminal action. A Director, who was not in charge of and was not responsible for the conduct of the business of the Company at the relevant time, will not be liable for an offence under Section 141 of the NI Act. In National Small Industries Corpn. [National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330 : (2010) 1 SCC (Civ) 677 : (2010) 2 SCC (Cri) 1113] this Court observed: (SCC p. 336, paras 13-14) "13. Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore....
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....CC OnLine Del 12968 with specific reference to paragraphs 7, 9 & 10 of the said verdict, which read to the effect:- "7. It may be that under the articles of association of the company accused, the petitioners being the non-executive directors nominated by the investor company have some role to play on the board of directors. It may also be that no meeting of board of directors could be convened without at least one of them being present. But then, there is some distinction between being privy to what were the affairs of the company and being responsible for its dayto-day affairs or conduct of its business. ..... 9. The respondent (complainant) concededly had received the replies on behalf of the petitioners to the demand notices issued in the wake of the dishonor of the cheques which are the subject matter of these eight petitions. By the said replies, they had specifically informed the complainant that they had no role to play in the day-to day affairs of the accused company or conduct of its business. It was the responsibility against this backdrop, to set out as to why they wanted to proceed against the petitioners as well. The complaints are conspicuo....
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....ies, which in the judgment of Board may affect their independent judgment. As a guiding principle of disclosure, no material fact should be suppressed while disclosing the names of a company that is a defaulter and the names of all directors should be published. However, while doing so, a suitable distinguishing remark should be made clarifying that the concerned person was an independent director. Similarly the names of directors who are nominees of government or financial institutions should also be reported but a suitable remark 'nominee director' should be incorporated. Therefore, against the names of Independent Directors and Nominee Directors, they should indicate the abbreviations "Ind." and "Nom" respectively in brackets to distinguish them from other directors." .... .... 9. The legality and validity of the Master circular dated 2nd July, 2012 was challenged before a Division Bench of the Gujarat High Court in Ionic Metalliks v. Union of India, 2014 SCC OnLineGuj 10066; (2015) 2 GLH 156. The court while deciding the issue noted the categories of Directors under the Companies Act and the Listing Agreement prescribed by Securities and Exchange Boar....
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...."Original Director"), who is absent for whatever reason for a minimum period of three months from the State in which the meetings of the Board are ordinarily held. Such Alternate Director will hold office until such period that the Original Director would have held his or her office. However, any provision for automatic re-appointment of retiring Directors applies to the Original Director and not to the Alternate Director. 5. 'Shadow' Director: A person, who is not appointed to the Board, but on whose directions the Board is accustomed to act, is liable as a Director of the company, unless he or she is giving advice in his or her professional capacity. Thus, such a 'shadow' Director may be treated as an 'officer in default' under the Companies Act. 6. De facto Director: Where a person who is not actually appointed as a Director, but acts as a Director and is held out by the company as such, such person is considered as a de facto Director. Unlike a 'shadow' Director, a de facto Director purports to act, and is seen to the outside world as acting, as a Director of the company. Such a de facto Director is liable as a Director under the Companies Act. ....
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....and 3. Independent Director. Executive and non-executive Directors An Executive Director can be either a Whole-time Director of the company (i.e, one who devotes his whole time of working hours to the company and has a significant personal interest in the company as his source of income), or a Managing Director (i.e, one who is employed by the company as such and has substantial powers of management over the affairs of the company subject to the superintendence, direction and control of the Board). In contrast, a non-executive Director is aDirector who is neither a Whole-time Director nor a Managing Director. Clause 49 of the Agreement prescribes that the Board shall have an optimum combination of executive and non-executive Directors, with not less than fifty percent (50%) of the Board comprising non-executive Directors. Where the Chairman of the Board is a non-executive Director, at least one-third of the Board should comprise independent Directors and in case he is an executive Director, at least half of the Board should comprise independent Directors. Where the non-executive Chairman is a promoter of the company or is related to any promoter or person....
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.... Care nor the signatory to the cheque. He is also not the person responsible for day-to-day functioning of Vasan Health Care. No vicarious liability can be fastened on the petitioner in the absence of specific role being attributed to the petitioner.", to contend that no vicarious liability can be fastened on the petitioner in the absence of a specific role being attributed to the petitioner in the complaint even after it had been specified by the accused no.1 in the reply to the legal notice that the petitioner had no role to play in the day to day affairs of the accused no.1 company. 16. Reliance was also placed on behalf of the petitioner on a catena of verdicts to contend to the effect that in the absence of specific averments in relation to the specific role attributed against the petitioner, merely making a bald cursory statement that the petitioner was incharge and responsible for the day to day affairs of the company, does not suffice to make the petitioner vicariously liable for dishonouring of the cheques not signed by him and there being nothing spelt out in the complaint to show the specific role attributed against him. Reliance in relation thereto, was thus place....
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....isions, this Court has held that for making Directors liable for the offences committed by the company under Section 141 of the Act, there must be specific averments against the Directors, showing as to how and in what manner the Directors were responsible for the conduct of the business of the company. .... .... 22. Therefore, this Court has distinguished the case of persons who are in charge of and responsible for the conduct of the business of the company at the time of the offence and the persons who are merely holding the post in a company and are not in charge of and responsible for the conduct of the business of the company. Further, in order to fasten the vicarious liability in accordance with Section 141, the averment as to the role of the Directors concerned should be specific. The description should be clear and there should be some unambiguous allegations as to how the Directors concerned were alleged to be in charge of and were responsible for the conduct and affairs of the company. .... .... 38. But if the accused is not one of the persons who falls under the category of "persons who are responsible to the company ....
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....t is not necessary to make specific averment in the complaint. (vii) 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.", on the verdict of the Hon'ble Supreme Court in "S.M.S. Pharmaceuticals Ltd. V. Neeta Bhalla and Anr." (2007) 4 SCC 70 with specific reference to paragraphs 10 & 20, which read to the effect:- "10. Having regard to the importance of the questions, the matter was referred to a three-Judge Bench of this Court. Upon noticing the rival contentions of the parties as also the precedents operating in the field, the questions were answered by the larger Bench in the following terms: "19. 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 1....
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....not disjunctively. When a legal fiction is raised, the ingredients therefore must be satisfied.", and on the verdict of this Court in "Anoop Jhalani V. State and Anr." 2007 SCC OnLine Del 1293 with specific reference to paragraph 21, which reads to the effect:- "21. It is apparent that with reference to the use of expression 'as such' the Hon'ble Supreme Court held that it amounted to a presumption drawn by the complainant and not a positive statement that the concerned director was in charge of and responsible for the conduct of the business of the company."; in "Suresh Jindal V. State and Anr." 2008 SCC OnLine Del 1181 with specific reference to paragraphs 12 & 17, which read to the effect:- "12. It is not in dispute that the cheque for a sum of Rs. 1 lac which is the basis of the complaint in question was issued by late Shri Ramesh Chand Jindal and photo-copy of the same as placed on record clearly shows that the same was not issued by Mr. Ramesh Chand Jindal in his capacity as a Director of the company. There is no seal of the company on the photo-copy of the said cheque and the account number as indicated in the cheque coincides with the account num....
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.... 17. The said legal position stands crystallized in the above case and also in the other judgments cited by the Counsel for the petitioner, therefore, the same need not be dealt with separately. Adverting back to the complaint case filed by respondent No. 2, it is clearly borne out that the cheque in question was signed by late Mr. Ramesh Chand Jindal in his individual and personal capacity from his saving bank account and therefore, the cheque not being drawn by Mr. Ramesh Chand Jindal either in his capacity as a Director of the company or in any other capacity to represent the interest of the company, the present petitioner who although might have been a Director of the company in whose favour the loan was advanced, cannot be made liable to face the criminal prosecution. Indisputably, the company is the principal offender and the Director becomes automatically liable due to the legal fiction created under Section 141, N.I. Act. For holding a person vicariously liable for an offence of which the principal accused is the company, it is essential that the incriminating act was done by him. When the petitioner was neither signatory to the cheques nor there is any averment to t....
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....ffairs of the Company. On this ground also, the appellant is entitled to succeed.", on the verdict of this Court in "Bikash Chakrborty V. Reliance Structure Pvt. Ltd." 2012 SCC OnLine Del 1173 with specific reference to paragraphs 8 & 9, which read to the effect:- "8. Accused no. 1 is the company, accused no. 2, 4 and 5 are the present petitioners and accused no. 3 is the Managing Director, who admittedly had signed the cheques in question on behalf of the company. With regard to the liability of the Managing Director, there was no dispute that he was incharge and responsible to the conduct of affairs of company. There is also no dispute with regard to the fact that petitioner no. 1 who was arrayed as accused no. 5 was an employee and accused no. 2 and 3 are the directors of the company. From the averments as leveled against the petitioners as noted above in the complaint, it cannot be said that the acts committed by them would sufficiently make out the petitioners herein to be vicariously liable. In order to fasten the vicarious liability on the petitioners in accordance with the provisions of Section 141 of the Act, the averments as to the role of the concern....
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....o dispute that the appellant, who was wife of the Managing Director, was appointed as a Director of the Company-M/s Elite International (P) Ltd. on 1-7-2004 and had also executed a letter of guarantee on 19-1-2005. The cheques in question were issued during April 2008 to September 2008. So far as the dishonour of cheques is concerned, admittedly the cheques were not signed by the appellant. There is also no dispute that the appellant was not the Managing Director but only a non-executive Director of the Company. Non-executive Director is no doubt a custodian of the governance of the company but is not involved in the day-to-day affairs of the running of its business and only monitors the executive activity. To fasten vicarious liability under Section 141 of the Act on a person, at the material time that person shall have been at the helm of affairs of the company, one who actively looks after the day-to-day activities of the company and is particularly responsible for the conduct of its business. Simply because a person is a Director of a company, does not make him liable under the NI Act. Every person connected with the Company will not fall into the ambit of the provision. Time a....
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....a Director of the accused Company nor in charge of or involved in the day-to-day affairs of the Company at the time of commission of the alleged offence. There is not even a whisper or shred of evidence on record to show that there is any act committed by the appellant from which a reasonable inference can be drawn that the appellant could be vicariously held liable for the offence with which she is charged." 17. On a consideration of the rival submissions made on behalf of either side, it is essential to observe that the facts of the instant case are in pari materia to the facts of the cases relied upon on behalf of the petitioner in "Bhardwaj Thuiruvenkata Venkatavraghavan" (supra) and in "Kanarath Payattiyath Balraj" (supra). This is so, in as much as, though the respondent vide para 3 of its complaint has contended that the accused no.6 to the complaint was a whole time Director and incharge and responsible for the conduct of the day to day business of the accused company, the petitioner has placed on record the copy of Form-32 in relation to M/s Dinesh Oil Pvt. Ltd. i.e. in relation to the accused no.1, which gives the Director Identification Number (DIN) of the petitioner ....