TaxTMI 
TaxTMI 
2023 (4) TMI 706
X X X X Extracts X X X X
X X X X Extracts X X X X
....been arrayed as A-2 while the Directors of A-1, who are stated to be in charge and responsible for the conduct of day-to-day affairs of the accused company, have been arrayed as A-3 to A-8. The gravamen of the complaint was that the accused company had approached the complainant company (M/s. Cecil Webber Engineering Ltd.) for advancement of a business loan of Rs.5 crores as an Inter Corporate Deposit (ICD). The said loan was advanced on mutually agreed terms, and in discharge of its liability the accused company issued a cheque for Rs.5 crores with the assurance that the same would be honoured. The said cheque, on presentation, was dishonoured vide cheque returning memo dated 27th July, 2012 with remarks "insufficient funds". Thereafter, pursuant to legal notices, the said complaint was lodged under section 138 NI Act. 3. As per the summoning order dated 9th November, 2012, summons were issued to all accused, including A-1 (the accused company) and A-2 to A-8. During the pendency of the complaint, A-4 to A-8 were dropped from the array of accused by the complainant on the ground that the complainant "does not want to prosecute them". This was recorded in the order dated 31st Au....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., it was noted by the Ld. ASJ that the defence of the petitioner was that he was a non-executive Director of A-1 cannot be seen at the stage of framing of notice and the petitioner will get adequate opportunity to prove it at an appropriate stage. It was also noted that A-4 to A-8 who were initially arrayed as accused, were dropped by the complainant since the complainant was having difficulty in serving them. iv) Fourthly, this Court had directed the petitioner on 22nd May, 2019 to file an affidavit specifically deposing whether he was a Director or not on 11th July, 2012. Such an affidavit was indeed filed by the petitioner stating categorically that on 11th July, 2012, he was not an executive Director of A-1 and not managing the day-to-day activities of the accused company. In support of this, an extract from the 69th Annual Report for 2010-2012 was appended which noted that the petitioner was associated with the accused company in non-executive capacity. Further, he was not a signatory to the cheque and in any event, he resigned from A-1 as non-executive Director with effect from 29th December 2012 and in support of this, Form 32 had been filed. It was further noted th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....accused that they were non-executive Directors and not responsible for the conduct of the company, it was held that it was not open for the High Court to interfere under section 482 Cr.P.C. unless it comes across some unimpeachable, incontrovertible evidence which is beyond suspicion of doubt and which would clearly indicate that the Director could not have been concerned with the issuance of the cheque. 8. Ld. Senior Counsel for the petitioner rebutted reliance on this decision by stating that on facts, the cheques were issued when the accused were Directors of the company and were responsible for its business activities and were involved in the company. It is further contended that the accused company itself was being wound up and therefore, there was a long delay in the proceedings. 9. Reliance was further placed on the decision in S.P Mani & Mohan Dairy v. Snehalatha Elangovan, (2022) SCC OnLine SC 1238 where the Hon'ble Supreme Court while dealing with section 138 of the NI Act, noted that since no appropriate reply was given to the legal notice providing the material that the said accused was not involved, the opportunity to clarify has not been utilized and the complai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e order dated 24th September, 2019 passed by the NCLT, Mumbai. 12. Receiving an ICD of Rs.5 crores was evidently not done under the signatures of the petitioner, nor was the petitioner a signatory to the said cheque which was furnished as part of the promissory guarantee of repayment. There is nothing on the records of the proceedings that there was any communication with the complainant which would have noted an active role of the petitioner in the specific transition that had taken place or the cheque which had been issued in lieu thereof. The dictum of the Hon'ble Supreme Court in Sunita Palita (supra) is, therefore, apposite and applicable in these circumstances. Mere designation as a director cannot import vicarious liability for a dishonoured cheque. It was this very mischief that was sought to be circumscribed, curtailed and avoided by the decision in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89. The spirit of these decisions by the Hon'ble Supreme Court is that there has to be something more substantial shown by the complainant rather than a bald averment that a particular accused was in charge of the day-to-day affairs of the company. 13. Vicarious li....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns 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: Provided that the person so charged has given his consent in this behalf to the Board; (g) where any company does not have any of the officers specified in Clauses (a) to (c), any Director or Directors who may be specified by the Board in this behalf or where no Director is so specified, all the Directors: Provided that where the Board exercises any power under Clause (f) or Clause (g), it shall, within thirty days of the exercise of such powers, file with the Registrar a return in the prescribed form. 38. But if the accused is not one of the persons who falls under the category of "persons who are responsible to the company for the conduct of the business of the company" then merely by stating that "he was in charge of the business of the company" or by stating that "he was in charge of the day-to-day management of the company" or by stating that "he was in charge of, and was responsible to the company for the conduct of the business of the company", he cannot be made vicario....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Jwala Devi Enterprises v. Fadi El Jaouni, (2018) SCC OnLine Del 10030 this Court has held that as per judicial pronouncements the following principles may be summarised as under: "(i) It is only those persons who are in charge of or responsible for the conduct of the business of the company at the time of commission of the offence under Section 138 of the Negotiable Instruments Act, 1881 who can be subjected to criminal action with reference to Section 141; (ii). If the person committing an offence under Section 138 of the Negotiable Instruments Act, 1881 is a company, the person who was signatory to the cheque which is dishonoured is clearly responsible for the incriminating act and would be liable to be proceeded against under Section 141 (2); (iii). By virtue of the office they hold, the persons working in the capacity of the Managing Director or Joint Managing Director are deemed to be in charge of, and responsible for the conduct of the business of, the company and, therefore, can be proceeded against in terms of Section 141; (iv). Merely because a person is a director of the company is not sufficient to make him liable under Section 141, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... were dropped by the complainant, there was no reason for the complainant to have continued with proceedings against Accused No.3. 19. The reasons provided by the Ld. MM while dismissing the discharge application of Accused No.3 (the petitioner) was limited to adverting to the letter head of "Yash Birla Group" in order to continue proceedings against Accused No.3. Merely the mention of the name of Accused No.3 on the letter head as being the Head of the Group, does not ipso facto or ipso jure make him in-charge of and responsible for the affairs and business of the company at the time the offence was committed. 20. As per Annual Report filed by the petitioner, he was clearly a Non-Executive Director of the Company and therefore the monitoring of executive activities would be in the hands of the Managing Director, Mr. P.V.R. Murthy. 21. The Courts have consistently reiterated that a non-executive director may be the custodian of governance of the Company but are not involved in the day-to-day affairs of running its business and only monitor executive activities of the Company. Reference is being made to the decision of the Hon'ble Supreme Court in Puja Ravinder Devidasani v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce may also be made to a decision of the High Court of Karnataka in Shamanur Shivashankarappa v. India Sugars & Refineries Ltd., 2014 SCC OnLine Kar 8179 regarding liability of a Chairperson of a company in context of the Essential Commodities Act, where it was noted: "26. The term Chairman is not defined under the Companies Act, 1965. The Chairman is a necessary person in company meetings and is usually appointed by the articles of the Company. Generally, Chairman is the highest post in the Company, who represents the name and fame of the Company. Chairman's role is to attend the meetings and to act according to the byelaws of the Company and also exercise any defined or reserved rights or duties. Regulation 76(1) of table A to Schedule-I to the Companies Act 1956, provides that the Board may elect a Chairman and determine the period for which he has to hold the office. Generally, the Directors elect one of them to be the Chairman of the Board who continues to be as such until he seizes to be a Director or some other Director who is appointed as a Chairman. Normally, the Chairman is a Director who is authorised to preside over the Board and General Meetings. In some c....