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2025 (5) TMI 1119 - HC - Indian LawsInherent jurisdiction under Section 482 of the CrPC - Challenged the separate summon orders - dishonour of cheque - returned unpaid vide return memo remarks payment stopped by the drawer. - unimpeachable material - Whether the petitioners who were/are directors/shareholders of the petitioner company can be made liable on account of them being associated with the Accused No. 1 company - petitioners are not a signatory to the subject cheques - principle of vicarious liability - Applicability of criminal liability under Section 138 read with Section 141 of the Negotiable Instruments Act 1881 (NI Act) - HELD THAT - It is pertinent to note that Section 141 of the NI Act does not specify the designation/position that a person must hold in the accused company in order for them to be vicariously liable. Section 141 of the NI Act merely asseverates that when the principal offender is the company then any person who was in charge of and was responsible to the company for the conduct of the business of the company shall be liable to be proceeded against. The relevance of the term and appearing between the phrases was in charge of and was responsible to the company for the conduct of the business of the company as appearing in Section 141 (1) of the NI Act was emphasised by the Hon ble Apex Court in the case of Ashok Shewakramani and Others v. State of Andhra Pradesh and Another 2023 (8) TMI 599 - SUPREME COURT . In line with the dictum of the Hon ble Apex Court in Ashok Shewakramani and Others v. State of Andhra Pradesh and Another 2023 (8) TMI 599 - SUPREME COURT and Section 141 (1) of the NI Act to fasten liability the petitioners ought to be in charge of and responsible for the conduct of the accused company at the time of commission of the offence. It is pertinent to note that mere per se association with the accused company does not tantamount to mean that the petitioners were in charge of or responsible to the company for the conduct of the business of the accused company. It must be shown that the petitioners were not only in charge of but were also responsible to the company for the conduct of the business of the company. Merely because the petitioner company - M/s. SAM India Builtwell Pvt. Ltd at some stage held 2000 equity shares amounting to approximately 0.3 % shareholding in Accused No. 1 company does not tantamount to mean that the directors/shareholders of the petitioner company would also be considered to be incharge of and responsible for the conduct of Accused No. 1 company. The petitioners cannot be stitched to be bound to the affairs of Accused No. 1 company by the mere thread that the petitioner company at some stage held of 0.3% shareholding in Accused No. 1 company. The principle of vicarious liability enshrined under Section 141 of the NI Act cannot be stretched to such extravagant lengths so as to enmesh any person even associated with the accused company to be caught in the web of culpability. From the record it is borne out that the petitioners were neither signatory nor responsible to the Accused no. 1 for the conduct of its affairs. Even otherwise the petitioner company - M/s. SAM India Builtwell Pvt. Ltd long back in the assessment year 2014-2015 had transferred its 2000 equity share in equal proportion to accused Vinay Jain and Asha Jain before the subject cheques were issued or dishonoured in the year 2017. Thus the present petitions are allowed and the proceedings emanating from Complaint for the offence under Section 138 read with Section 141 of the NI Act qua the petitioners are quashed.
The core legal questions considered in this judgment revolve around the applicability of criminal liability under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 (NI Act) to the petitioners, who are directors/shareholders of a company that held shares in the principal accused company. Specifically, the issues are:
1. Whether the petitioners, by virtue of being directors/shareholders of a company that held shares in the accused company, can be held liable under Section 138 read with Section 141 of the NI Act for the dishonour of cheques issued by the accused company. 2. Whether mere shareholding or association with the accused company is sufficient to attract criminal liability under Section 141 of the NI Act. 3. The scope and ambit of Section 141 of the NI Act regarding vicarious liability of persons "in charge of and responsible to the company for the conduct of the business" at the time the offence was committed. 4. The extent to which the Court can exercise its inherent jurisdiction under Section 482 of the Criminal Procedure Code (CrPC) to quash complaints at the pre-trial stage on the basis of the petitioners' factual defenses. Issue-wise detailed analysis: Issue 1 & 2: Liability of petitioners under Section 138 read with Section 141 of the NI Act by virtue of shareholding and directorship The legal framework governing this issue is Section 141 of the NI Act, which imputes liability to every person who, at the time the offence under Section 138 is committed, was in charge of and responsible to the company for the conduct of its business. The liability is vicarious and penal in nature, requiring strict construction. Mere designation as director or shareholder does not automatically attract liability. The Court relied on authoritative precedents, including the Apex Court's decisions in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, K.K. Ahuja v. V.K. Vora, and the recent Susela Padmavathy Amma v. M/s. Bharti Airtel Limited, which clarify that only persons who were actually in charge of and responsible for the company's business at the relevant time can be held liable. The designation or shareholding alone is insufficient. The Court emphasized the conjunctive requirement of being both "in charge of" and "responsible to" the company for the conduct of business, as underscored in Ashok Shewakramani and Others v. State of Andhra Pradesh. This means that the accused must have had control and accountability for the company's affairs when the offence occurred. Key findings from the material on record include:
The Court applied the law to these facts and concluded that mere shareholding or indirect association through the petitioner company does not suffice to establish the petitioners as persons "in charge of and responsible" for the accused company's business. The petitioners' connection was too remote and did not meet the statutory threshold for vicarious liability under Section 141. Competing arguments included the complainant's submission that the petitioners were part of an association involved in the accused company and thus liable. However, the Court treated these as factual disputes to be resolved at trial, noting that the defense raised by the petitioners was not conclusively disproved by unimpeachable material at this stage. Issue 3: Scope of Section 141 of the NI Act and vicarious liability The Court analyzed Section 141's language and legislative intent, underscoring that it creates vicarious liability only for persons who were both in charge of and responsible to the company for its business conduct at the time of the offence. The Court reiterated that liability is not automatic for directors or shareholders but depends on their actual role and control. Precedents emphasized the need for specific averments detailing the accused's role in company affairs, as mere titular association is insufficient. The Court referenced the necessity for strict construction of penal provisions creating vicarious liability and the requirement that the complaint must spell out how the accused was in charge of and responsible for the company's business conduct. Issue 4: Exercise of inherent jurisdiction under Section 482 CrPC to quash complaints at pre-trial stage The Court considered the scope of interference at the pre-trial stage under Section 482 CrPC, guided by the Apex Court's ruling in Rathish Babu Unnikrishnan v. State (NCT of Delhi). The Court noted that quashing is warranted only if the accused can show unimpeachable material disproving the allegations, and that factual disputes generally require trial. The Court emphasized that premature quashing would deprive the complainant of a fair opportunity to prove the case and that the presumption of innocence and legal presumptions under the NI Act favor allowing the trial to proceed unless there is clear evidence to the contrary. In the present case, the petitioners' defense that they were not in charge or responsible for the accused company's business was found to be supported by material facts, including share transfer prior to the offence and absence of direct involvement. This justified quashing the complaints against them at the pre-trial stage. Significant holdings and core principles established: "Only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of an offence, will be liable for criminal action. It follows from this that if a Director of a company 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 under the provision." "The words 'was in charge of' and 'was responsible to the company for the conduct of the business of the company' cannot be read disjunctively and the same ought be read conjunctively in view of use of the word 'and' in between." "Mere shareholding or association with the accused company does not tantamount to being in charge of and responsible for the conduct of the business of the accused company so as to make the persons vicariously liable under Section 141 of the NI Act." "Section 482 CrPC should be exercised to quash complaints at the pre-trial stage only when there is unimpeachable material disproving the allegations and no prima facie case is made out." Final determinations:
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