2022 (12) TMI 90 - HC - Indian Laws

Dishonor of Cheque - it is alleged that the petitioner was looking after the day to day affairs of the company - vicarious liability can be fastened against the petitioner under section 141 of the Negotiable Instruments Act or not - HELD THAT - The Court has gone through the materials on record and finds that admittedly the petitioner was the Executive Director at the time of issuing of the cheque. In paragraph no.3 of the complaint it has been clearly averred that the accused nos. 2 3 and 6 are the Directors of the company and accused nos.4, 5, 7, 8, 9 and 10 are responsible for the day to d ay affairs of the company. Thus in the complaint itself it has been disclosed that this petitioner was not concerned with the day to day affairs of the company. The cheque was issued on 30 .09.2014. This petitioner has resigned on 27.02.2014 which was accepted on 14.11.2014 as contained in annexure 5 series. The cheque was presented on 20.12.2014 which was returned on 22.12.2014 and legal notice was issued on 30.12.2014 the reply by the accused on 17. 01 .2014 and 23.01.2015 respectively and the complaint was filed on 04.02.2015 and the document on record clearly suggest that the petitioner has resigned on 14.11.2014 and the complaint was filed on 04.02.2015. On perusal of the cheque which has been brought on record in the petition it is transpired that the cheque in question was issued by the authorized signatory and it has been signed by the accused nos.2 and 3. Admittedly this petitioner is not the signatory of the cheque in question. Thus it is crystal clear that vicarious liability under sub section 1 or 2 of section 141 of the Negotiable Instruments Act can be fastened if the person is having the control over the day to day affairs of the company. Looking to the explanation of the said section it is crystal clear that the firm or the company are required to be made an accused in the complaint and the company has already been made accused in the case in hand however such vicarious liability arises only when the company or the firm commits offence as primary offence. In the case in hand in the complaint it has been stated that this petitioner was only Director and accused nos.4, 5, 7, 8, 9 and 10 are made to look after day to day affairs of the company and other accused persons against whom also cognizance has been taken. In the case in hand it is an admitted fact as averred in the paragraph no.3 of the complaint petition that the accused nos.4, 5, 7, 8, 9 and 10 are looking after the day to day affairs of the company and the petitioner is not the drawer of the cheque and in the light of the judgment of the Hon ble Supreme Court in the case of S.M.S. Pharmaceuticals v. Neeta Bhalla 2005 (9) TMI 304 - SUPREME COURT it has been considered later on by the Hon ble Supreme Court in the case of S.P.Mani 2022 (9) TMI 846 - SUPREME COURT that the order taking cognizance was erroneous and would not sustain under the eye of law. Application disposed off.

Summary

Issues Involved:
1. Quashing of the entire criminal proceeding under section 138 read with section 141 of the Negotiable Instruments Act, 1881.
2. Vicarious liability of directors under section 141 of the Negotiable Instruments Act.
3. Resignation of the petitioner as a director and its impact on liability.
4. Adequacy of averments in the complaint regarding the petitioner's responsibility for the conduct of business.

Issue-wise Detailed Analysis:

1. Quashing of the entire criminal proceeding under section 138 read with section 141 of the Negotiable Instruments Act, 1881:
The petitioner sought to quash the criminal proceedings initiated against him under section 138 read with section 141 of the Negotiable Instruments Act, 1881. The complaint alleged that the petitioner, along with others, was responsible for the issuance of dishonored cheques towards repayment of a loan and interest. The court examined whether the petitioner could be held liable under these sections.

2. Vicarious liability of directors under section 141 of the Negotiable Instruments Act:
The court analyzed section 141 of the Negotiable Instruments Act, which deals with the liability of directors and other officers of a company. It was emphasized that vicarious liability under this section can only be fastened if the person was in charge of and responsible for the conduct of the business of the company at the time the offense was committed. The court referred to the case of Ashutosh Ashok Parasrampuriya and Another v. Gharrkul Industries Pvt. Ltd. and Others, which stated that merely being a director is not sufficient to make a person liable under section 141; it must be specifically averred that the person was in charge of and responsible for the conduct of the business.

3. Resignation of the petitioner as a director and its impact on liability:
The petitioner argued that he had resigned from the company before the cheques were dishonored and thus should not be held liable. The court noted that the petitioner had resigned on 27.10.2014, which was accepted on 14.11.2014. The cheques were dishonored on 20.12.2014, and the legal notice was issued on 30.12.2014. The court found that the petitioner was not the signatory of the cheques in question and had resigned before the dishonor of the cheques, which was supported by unimpeachable evidence.

4. Adequacy of averments in the complaint regarding the petitioner's responsibility for the conduct of business:
The court examined the complaint and found that it did not adequately aver that the petitioner was responsible for the conduct of the business of the company at the relevant time. The complaint itself stated that other accused persons were responsible for the day-to-day affairs of the company. The court referred to the case of S.M.S. Pharmaceuticals v. Neeta Bhalla, which held that it is necessary to aver in the complaint that the person was in charge of and responsible for the conduct of the business.

Conclusion:
The court concluded that the complaint did not satisfy the requirements of section 141 of the Negotiable Instruments Act as it did not specifically aver that the petitioner was responsible for the conduct of the business at the relevant time. The court found that the petitioner had resigned before the cheques were dishonored and was not the signatory of the cheques. Therefore, the order taking cognizance against the petitioner was set aside. The trial would proceed against the company and other accused persons. The petition was allowed to the extent of quashing the proceedings against the petitioner.