2016 (6) TMI 726 - GUJARAT HIGH COURT

Offence under Section 138 of Negotiable Instruments Act - Cheques were dishonoured by the bank on the ground that the drawer’s signatures were incomplete or that no image was found or that the signatures did not match. - Vicarious liability - Liability of the authorized signatory or every person who were in charge in case of a Comapny including office bearer and nominated directors.

Held that:- ‘Vicarious liability’ in legal parlance means the liability of the master for the acts of the servant or agent done in the course of employment. Section 141 makes a natural person vicariously liable for the contravention committed by a company provided such person has some nexus with the crime either because of his connivance with it or due to by criminal negligence which had resulted in its commission. No doubt the law makes the principal liable for the acts of his agent, but unless there is some absolute duty cast upon the principal, he cannot be held responsible for the acts of his agent. [Sheo Prasad 1956 (5) TMI 33 - ALLAHABAD HIGH COURT]

In K.K. Ahuja [2009 (7) TMI 758 - SUPREME COURT OF INDIA], the Supreme Court has explained the vicarious liability of persons of the company.

In view of the aforesaid dictum of law explained by the Supreme Court, the other accused who have been arrayed as accused by virtue of Section 141 of the N.I. Act could not be held liable.

In complaints filed for the offence under Section 138 of the N.I. Act, all the Directors of the company and even the Office Bearers are routinely being proceeded against by invoking the provisions under Section 141 of the N.I. Act by glibly repeating the words in the section that certain Director “was incharge of and responsible to the company for the conduct of business of the company”. It is necessary to emphasis that Section 141 of the N.I. Act where an offence under Section 138 of the N.I. Act has been committed by a company, the complainant is required to give a serious thought and make enquiries and ascertain the fact as to whether a particular Director was incharge of and responsible to the affairs and conduct of the business of the company. Routinely roping in all the Directors by merely repeating the words used in Section 141 of the N.I. Act without ascertaining the facts is a serious matter which has to be deprecated.

Some of the applicants before me are indisputably nonexecutive Directors of the company. A nonexecutive Director is no doubt a custodian of the governance of the company, but does not involve in the daytoday affairs of the running of its business and only monitors the executive activity.

There is no cogent material on record to fasten any vicarious liability so far as the other accused are concerned who are NonExecutive Directors including the Office Bearers concerned with the Accounts Department of the company.

Whenever a blank cheque or postdated cheque is issued, a trust is reposed that the cheque will be filled in or used according to the understanding or agreement between the parties. If there is a prima facie reason to believe that the said trust is not honoured, then the continuation of prosecution under Section 138 of the N.I. Act would be the abuse of the process of law. It is in the interest of justice that the parties in such cases are left to the civil remedy.

All the petitions succeed and are allowed. The order of the issuance of the process under Section 138 of the N.I. Act is hereby quashed. Rule is made absolute accordingly. - Decided in favor of petitioners.