2014 (12) TMI 1070 - SC - Companies Law

Vicarious liability upon Director of the Company in case of dishonor of cheques - Whether the appellant is liable for prosecution u/s 138 r.w. Section 141 of the N.I. Act for the offence of dishonor of cheques committed by the default Company – Held that:- The appellant was wife of the Managing Director, and appointed as a Director of the Company— M/S Elite International Pvt. Ltd. on 1st July, 2004 and had also executed a Letter of Guarantee on 19th January, 2005 - The cheques were issued during April, 2008 to September, 2008 - So far as the dishonor of Cheques is concerned, admittedly the cheques were not signed by the appellant - 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 does not involve 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 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 N.I. Act - Every person connected with the Company will not fall into the ambit of the provision - 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 N.I. Act – the same has been held in National Small Industries Corpn. Ltd. Versus Harmeet Singh Paintal [2010 (2) TMI 590 - SUPREME COURT OF INDIA] – Continuation of the criminal proceedings against the appellant under Section 138 read with Section 141 of the N.I. Act is a pure abuse of process of law and it has to be interdicted at the threshold.

Validity of dismissal of Writ petition by HC - Held that:- The High Court did not deal the issue in a proper perspective and committed error in dismissing the writ petitions by holding that in the Complaints filed by the Respondent No. 2, specific averments were made against the appellant - But on the contrary, taking the complaint as a whole, it can be inferred that in the entire complaint, no specific role is attributed to the appellant in the commission of offence - to attract a case under Section 141 of the N.I. Act a specific role must have been played by a Director of the Company for fastening vicarious liability – the appellant was neither 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 – thus, the criminal complaint is set aside.

So far as the Letter of Guarantee is concerned, it gives way for a civil liability which the respondent No. 2—complainant can always pursue the remedy before the appropriate Court - So, the contention that the cheques in question were issued by virtue of such Letter of Guarantee and hence the appellant is liable under Section 138 read with Section 141 of the N.I. Act, cannot also be accepted in these proceedings - Decided in favour of appellant.