2025 (6) TMI 1159 - HC - Indian Laws

Dishonour of Cheque - complaint against the petitioners who are office bearers but not signatories to the cheque - summoning of petitioner in the absence of any averments - association of persons - Section 138 and 141 of the N.I.Act - HELD THAT - The Hon ble Supreme Court dealt with the liability of the Company and its Directors in Pawan Kumar Goel v. State of U.P. 2022 (11) TMI 855 - SUPREME COURT and held that only a person who is in charge of and responsible to the Company for its affairs can be summoned and punished under Section 138 read with Section 141 of NI Act. It was held by the Hon ble Supreme Court in Susela Padmavathy Amma v. Bharti Airtel Ltd. 2024 (3) TMI 789 - SUPREME COURT that a person can be vicariously liable if he is in charge and responsible to the Company for the conduct of its business. The Hon ble Supreme Court held in Siby Thomas v. Somany Ceramics Ltd. 2023 (10) TMI 487 - SUPREME COURT that the primary responsibility to make the averment that the accused is in charge and responsible for the firm for its affairs lies upon the complainant in the absence of which the accused cannot be held liable. Therefore the complainant should not only aver that the accused is in charge but also that he is responsible to the Company for its affairs. It is apparent that there is no averment that the present petitioners are In charge and responsible for the affairs of the Company. It mentions that accused No. 2 to 8 are responsible for the conduct of the business of accused No.1 however it does not contain any averment regarding the petitioners being in charge therefore the averments do not satisfy the ingredient of Section 141 of the N.I.Act. In the present case there is nothing in support of the averments that the cheque was issued at the behest of the present petitioners with their knowledge consent and connivance. Para 3 of the complaint mentions that the accused no. 1 had opened a Branch. Para-6 reads that accused No. 2 and 6 visited the office and expressed their desire to vacate the premises. Para-7 reads that the complainant demanded payment from them and accused No. 2 and 6 issued post-dated cheque which was signed by them. These averments show that the cheque was issued at the instance of the accused no. 2 6 who had visited Theog. There is nothing in these paras that present petitioners were present at Theog or that the accused No. 2 and 6 had talked to them telephonically to obtain their consent or that accused 2 and 6 had shown any letter written by present petitioners authorizing them to issue the cheque therefore mere bald reproduction of Section 141 of N.I. Act will not help the complainant. Conclusion - The present complaint does not contain the necessary averments to summon the present petitioners as accused and the learned Trial Court erred in summoning them. The complaint pending before learned Additional Chief Judicial Magistrate Theog H.P. is ordered to be quashed qua the present petitioners - petition allowed.

Summary

The core legal questions considered in this judgment include:

1. Whether the complaint filed under Section 138 of the Negotiable Instruments Act (N.I. Act) against the petitioners, who are office bearers but not signatories to the cheque, discloses a prima facie case to summon them under Section 141 of the N.I. Act.

2. Whether mere membership or office-bearer status in the managing committee of a cooperative society (treated as a company under the N.I. Act) suffices to hold the petitioners liable under Section 141 of the N.I. Act without specific averments regarding their role in the conduct of the company's business.

3. The scope and application of the inherent powers of the High Court under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) to quash criminal complaints, particularly in cases involving negotiable instruments and vicarious liability of company officials.

4. The evidentiary threshold and nature of averments required in the complaint to fasten criminal liability on directors or office bearers under Section 141 of the N.I. Act, including the distinction between those "in charge of and responsible for" the company's business and those merely holding office.

5. The applicability of judicial precedents interpreting Section 141 of the N.I. Act and the extent to which the High Court can interfere at the summoning stage in complaints involving disputed questions of fact.

Issue-wise Detailed Analysis:

Issue 1: Prima Facie Case to Summon Petitioners under Section 141 of the N.I. Act

Legal Framework and Precedents: Section 138 of the N.I. Act penalizes dishonour of cheques for insufficiency of funds. Section 141 extends liability to persons "in charge of and responsible to the company" for the conduct of its business at the time the offence was committed. The Supreme Court has consistently held that liability under Section 141 is not automatic for directors or office bearers but requires specific averments demonstrating their role and responsibility (Pawan Kumar Goel v. State of U.P., S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, Rajesh Viren Shah v. Redington India Ltd.).

Court's Interpretation and Reasoning: The Court noted that the complaint only broadly alleged that accused Nos. 2 to 8 were office bearers responsible for the conduct of the business but failed to specifically aver that the petitioners were "in charge of and responsible to" the company at the relevant time. The cheque was signed only by accused Nos. 2 and 6. Mere membership in the managing committee without specific allegations of control or responsibility does not satisfy Section 141 requirements.

Evidence and Findings: The complaint's paragraphs 14 and 22 were examined. Paragraph 22 stated that accused Nos. 2 to 8 were responsible and the cheque was issued with their knowledge, consent, and connivance. However, there was no specific evidence or averment that the petitioners exercised control or consented to the issuance of the cheque. The petitioners did not sign the cheque or were shown to have authorized the signatories.

Application of Law to Facts: Applying the strict interpretation mandated for penal vicarious liability, the Court found the complaint deficient in averments against the petitioners. The absence of specific allegations or evidence of their involvement meant no prima facie case was made out to summon them.

Competing Arguments: The petitioners contended that the complaint lacked specific allegations against them and that the trial court failed to apply its mind. The complainant argued that disputed factual questions should not be decided at this stage and that the petitioners were rightly summoned as managing committee members. The Court favored the petitioners, holding that the absence of specific averments is a valid ground for quashing summoning orders.

Conclusion: The Court held that the petitioners could not be summoned under Section 141 without specific averments of their being in charge and responsible for the company's business at the time of the offence.

Issue 2: Role of Mere Office Bearers or Directors in Criminal Liability under Section 141

Legal Framework and Precedents: The Court extensively reviewed the jurisprudence on Section 141, including S.M.S. Pharmaceuticals Ltd., Rajesh Viren Shah, Pooja Ravinder Devidasani, and Siby Thomas. These cases emphasize that criminal liability under Section 141 is a legal fiction that must be strictly construed. Merely holding a position such as director or office bearer does not attract liability unless the person was in charge and responsible for the company's affairs or the offence was committed with their consent, connivance, or negligence.

Court's Interpretation and Reasoning: The Court reiterated that the complaint must contain clear and specific averments detailing the accused's role and responsibility. The Court underscored that the liability is not automatic by virtue of designation. The complainant must plead and prove the accused's active involvement or negligence leading to the offence.

Evidence and Findings: The complaint failed to specify the petitioners' roles beyond their membership in the managing committee. No evidence was presented that they were responsible for day-to-day business or authorized the cheque issuance. The Court found the allegations vague and insufficient to meet the statutory requirements.

Application of Law to Facts: The Court applied the strict construction principle and found the complaint wanting. The petitioners were not signatories, nor was there any clear allegation of their control or consent, thus they could not be held liable under Section 141.

Competing Arguments: The complainant relied on the general statement that accused Nos. 2 to 8 were responsible and that the cheque was issued with their knowledge and consent. The Court rejected this as a mere mechanical reproduction of statutory language without factual underpinning.

Conclusion: Mere office bearer status without specific allegations of control or consent is insufficient to hold a person liable under Section 141 of the N.I. Act.

Issue 3: Scope of High Court's Power under Section 528 BNSS to Quash Criminal Complaints

Legal Framework and Precedents: The Court referred to the principles laid down in State of Haryana v. Bhajan Lal and subsequent Supreme Court decisions including B.N. John v. State of U.P. and Ajay Malik v. State of Uttarakhand. The power to quash is an extraordinary remedy to prevent abuse of process or to secure ends of justice, exercised sparingly and not as a substitute for trial.

Court's Interpretation and Reasoning: The Court held that where the complaint does not disclose a prima facie offence or is based on vague or insufficient allegations, the High Court may quash the proceedings. The Court emphasized that disputed factual questions are generally not to be decided at this stage, but absence of necessary averments to make out a case against accused persons justifies quashing.

Application of Law to Facts: Since the complaint failed to make specific averments against the petitioners, the Court found the summoning order to be an abuse of process and liable to be quashed under Section 528 BNSS.

Competing Arguments: The complainant argued that factual disputes cannot be resolved in quashing petitions. The Court agreed generally but found the lack of statutory averments a sufficient ground for interference.

Conclusion: The Court exercised its inherent powers to quash the complaint against the petitioners to prevent abuse of process.

Issue 4: Requirement of Specific Averments in Complaint to Establish Vicarious Liability

Legal Framework and Precedents: The Court extensively cited precedents requiring that complaints under Section 141 must contain clear, specific, and unambiguous averments showing how the accused was in charge and responsible for the company's business or how the offence was committed with their consent or negligence (Siby Thomas, Gunmala Sales, S.P. Mani, National Small Industries Corp., Ashok Shewakramani).

Court's Interpretation and Reasoning: The Court reiterated that mechanical or verbatim reproduction of statutory language without factual backing is insufficient. The complaint must enable the accused to know the case against them and prepare a defense.

Evidence and Findings: The complaint only contained generalized statements about the petitioners' membership and responsibility but lacked particulars about their role in issuing the cheque or managing the company's affairs.

Application of Law to Facts: The Court found the complaint deficient in meeting the statutory and judicially mandated requirements for averments and thus not maintainable against the petitioners.

Conclusion: Specific and detailed averments are mandatory to fasten vicarious liability under Section 141 of the N.I. Act.

Issue 5: Treatment of Disputed Questions of Fact at the Quashing Stage

Legal Framework and Precedents: The Court noted that generally, disputed questions of fact are not to be decided on quashing petitions (Ajay Malik v. State of Uttarakhand). However, where the complaint is manifestly defective in law or lacks necessary averments, the Court may intervene.

Court's Interpretation and Reasoning: The Court recognized the complainant's contention that factual disputes should be left for trial but held that the absence of necessary averments is a pure question of law justifying quashing. The Court did not conduct a mini-trial but examined the complaint's averments to determine if a prima facie case existed.

Application of Law to Facts: The Court found no prima facie case against the petitioners and thus held that the trial court's summoning order was erroneous and liable to be quashed.

Conclusion: The Court exercised its power to quash on legal grounds without delving into disputed facts.

Significant Holdings:

"A person cannot be made liable under Section 141 of the Negotiable Instruments Act merely by virtue of being a director or office bearer of a company or cooperative society. Specific averments must be made in the complaint showing that the accused was in charge of and responsible to the company for the conduct of its business at the time the offence was committed."

"Mere mechanical reproduction of the language of Section 141 without factual particulars as to the accused's role, consent, connivance or negligence is insufficient to fasten vicarious liability."

"The High Court, exercising its inherent powers under Section 528 of the BNSS, can quash complaints where the allegations do not disclose a prima facie offence or where the complaint is manifestly defective, to prevent abuse of process."

"Disputed questions of fact are generally not to be decided at the quashing stage, but absence of necessary averments in the complaint is a question of law justifying quashing."

"The liability of directors or office bearers under Section 141 is a legal fiction and must be strictly construed; only those who were in charge and responsible for the company's affairs at the time of the offence can be held liable."

"The complainant bears the primary responsibility to make specific averments in the complaint to make the accused vicariously liable; failure to do so results in quashing of proceedings."

Final determinations:

The complaint and summoning order against the petitioners were quashed as the complaint lacked specific averments that the petitioners were in charge of and responsible for the company's business at the time of the cheque's dishonour. The petitioners were not signatories to the cheque and no evidence or allegation of their consent or connivance was made out. The trial court erred in summoning them, and the High Court rightly exercised its power under Section 528 BNSS to quash the complaint to prevent abuse of process.