TMI Blog2020 (1) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... he accused No.1 company as per the reply affidavit of the respondent as filed on 08.07.2007, he was so for the period from 01.04.2015 to 31.03.2016 and the date of the drawing of the cheques in question are 07.06.2019 - In view thereof, the impugned order dated 20.02.2017 of the Trial Court of the learned MM-01, New Delhi to the extent that summons are issued to the petitioner for an alleged commission of an offence punishable under Section 138 of the Negotiable Instruments Act, 1881 is thus, quashed. Petition allowed. - CRL.M.C. 1867/2019 & CRL.M.A.9837/2019, CRL.M.C. 1869/2019 & CRL.M.A.9839/2019 - - - Dated:- 7-1-2020 - MS. ANU MALHOTRA J . Petitioner Through: Ms. Urvika Suri, Advocate. Respondents Through: Mr. Purushotam, Advocate. JUDGMENT ANU MALHOTRA, J. 1. The petitioner namely Mr. Har Sarup Bhasin vide the present petition seeks the quashing of the order dated 20.02.2017 of the Trial Court of the learned MM-01, New Delhi and the quashing of the complaint i.e. CC No.45438/2016 vide which the petitioner was summoned for the alleged commission of an offence punishable under Section 138 of the Negotiable Instruments Act, 1881 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed an offence punishable under Section 138 of the Negotiable Instruments Act, 1881 and that the accused nos. 2 to 7 were in active connivance with the accused no.1 to take malafide steps to ensure the dishonour of the cheques. The complainant i.e. the respondent has further stated through the complaint that it had complied with all the requirements of Section 138 of the Negotiable Instruments Act, 1881, in as much as the cheques in question were presented within the period of their validity and that the demand for the payment was made to the accused on 15.06.2016 within 30 days of the receipt of the information regarding the dishonouring of the cheques on 09.06.2016 but that the accused failed to make the payment within 15 days of the notice and sent a reply dated 29.07.2016 taking baseless defences. 4. Vide the impugned summoning order dated 20.02.2017, it was observed by the learned Trial Court to the effect:- 20.02.2017 Present: AR for complainant in person along with Ld. Counsel. File perused. Heard. Evidence by way of affidavit tendered by AR of complainant. Original documents have been filed on record a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Independent Director of the accused company and not incharge of the business of the accused no.1 company. 7. The petitioner has further submitted that the respondent has fraudulently misrepresented him to be a Whole Time Director of the company whereas it is clear from the record and the reply to the demand notice that the petitioner was an Independent, Non-Executive Director of the company and thus, no vicarious liability can be inferred against the petitioner under Section 138 r/w Section 141 of the Negotiable Instruments Act, 1881. 8. Inter alia it has been submitted by the petitioner that in terms of Section 149(2) of the Companies Act, 2013, it has been categorically provided that an Independent and/ or Non-Executive Director (not being a promoter or a key managerial personnel) shall be held liable in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable to such Director through a board process or was done with his consent or connivance or where he had not acted diligently and that the respondent failed to disclose any of the circumstances provided under Section149 (12) of the Companies Act, 2013 fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being aware of the finances of the company and the working of the company. The respondent has further submitted that in as much as, the petitioner falls within the ambit of a key managerial personnel as defined under Section 2(53) of the Companies Act, 2013, he being responsible for the working of the company, cannot be considered an Independent Director and has further submitted that the petitioner had been a Director in the accused company since 01.10.2011 and the accused no.1 company is a closely held company and the petitioner was appointed therein on account of his close working and family relationship with the promoter Directors and was involved in the day to day running of the company and that the petitioner had not disclosed any other special qualification for allegedly being appointed as an Independent Director. 13. The respondent has further submitted that the cheques in question were dishonoured in the first week of June 2016 and consequently a legal notice was issued on 15.06.2016 and that it was only after the receipt of the legal notice that the petitioner resigned as a Director of the company w.e.f. 27.06.2017 and that there was a clear attempt on the part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e complaints it is merely stated that accused No. 2 to 8 are the directors of the company and have been actively participating in day-to-day affairs of the company and take all the decisions for the company. Admittedly, the petitioner is not the Managing Director of Vasan Health Care nor the signatory to the cheque. He is also not the person responsible for day-to-day functioning of Vasan Health Care. No vicarious liability can be fastened on the petitioner in the absence of specific role being attributed to the petitioner. , to contend that Independent, Non-Executive Directors are not involved in the day to day affairs of the company; on the verdict of the Hon ble Supreme Court in Pooja Ravinder Devidasani Vs. State of Maharashtra Anr. (2014) 16 SCC 1 to contend to similar effect with specific reference to paragraphs 17 25 thereof, which read to the effect:- 17. There is no dispute that the appellant, who was wife of the Managing Director, was appointed as a Director of the Company-M/s Elite International (P) Ltd. on 1-7-2004 and had also executed a letter of guarantee on 19-1-2005. The cheques in question were issued during April 2008 to September ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of a statement that they are in charge of and responsible for the conduct of the business of the company without anything more is not a sufficient or adequate fulfillment of the requirements under Section 141. (emphasis in original) . . . 25. A bare reading of the averment of Respondent No. 2 before the High Court, suggests that his case appears to be that the appellant has not proved her resignation in unequivocal terms and it is a disputed question of fact. It is noteworthy that the respondent No. 2 except making a bald statement and throwing the burden on the appellant to prove authenticity of documents, has not pleaded anywhere that the public documents Form 32 and Annual Return are forged and fabricated documents. Curiously, respondent No. 2 on the one hand raises a doubt about the genuineness of Form 32, a public document, through which the default Company had communicated the change of Directors to the Registrar of the Companies with the effect of resignation of the appellant and induction of two Directors-Operations and on the other hand, he has arrayed the two newly appointed Directors-Operations as accuse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verdict of this Court in Kanarth Payattuyath Balrajh V. Raja Arora 2017 SCC OnLine Del 7418 with specific reference to paragraphs 8, 9 15 of the said verdict, which read to the effect:- 8. The Reserve Bank of India vide its Master Circular No RBI/2012-13/43 dated 2nd July, 2012 on Wilful Defaulters issued directions with respect to the reporting of names of Directors and the position regarding Independent and Nominee Directors. Relevant Paras 5.1 and 5.2 of the Circular read as under: 5.1 Need for Ensuring Accuracy RBI/Credit Information Companies disseminate information on non-suit filed and suit filed accounts respectively, as reported to them by the banks/FIs and responsibility for reporting correct information and also accuracy of facts and figures rests with the concerned banks and financial institutions. Therefore, banks and financial institutions should take immediate steps to update their records and ensure that the names of current directors are reported. In addition to reporting the names of current directors, it is necessary to furnish information about directors who were associated with the company at the time the account was classifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany in question and has a significant personal interest in the company as his source of income. Every public company and private company, which is a subsidiary of a public company, having a share capital of more than Five Crore rupees (₹ 5,00,00,000/-) must have a Managing or Whole-time Director or a Manager. Further classification of Directors Based on the circumstances surrounding their appointment, the Companies Act recognizes the following further types of Directors: 1. First Directors: Subject to any regulations in the Articles of a company, the subscribers to the Memorandum of Association, or the company's charter or constitution ( Memorandum ), shall be deemed to be the Directors of the company, until such time when Directors are duly appointed in the annual general meeting ( AGM ). 2. Casual vacancies: Where a Director appointed at the AGM vacates office before his or her term of office expires in the normal course, the resulting vacancy may, subject to the Articles, be filled by the Board. Such person so appointed shall hold office up to the time which the Director who vacated office would have held office i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent of a nominee Director's rights and the scope of supervision by the shareholders, is contained in the contract that enables such appointments, or (as appropriate) the relevant statutes applicable to such public financial institution or bank. However, nominee Directors must be particularly careful not to act only in the interests of their nominators, but must act in the best interests of the company and its shareholders as a whole. The fixing of liabilities on nominee Directors in India does not turn on the circumstances of their appointment or, indeed, who nominated them as Directors. Chapter 4 and Chapter 5 that follow set out certain duties and liabilities that apply to, or can be affixed on, Directors in general. Whether nominee Directors are required by law to discharge such duties or bear such liabilities will depend on the application of the legal provisions in question, the fiduciary duties involved and whether such nominee Director is to be regarded as being in control or in charge of the company and its activities. This determination ultimately turns on the specific facts and circumstances involved in each case. B. Classification under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich may affect independence of the Director; b. is not related to promoters or persons occupying management positions at the board level or at one level below the board; c. has not been an executive of the company in the immediately preceding three (3) financial years; d. is not a partner or an executive or was not a partner or an executive during the preceding three (3) years, of any of the following: i. the statutory audit firm or the internal audit firm that is associated with the company, and ii. the legal firms and consulting firms that have a material association with the company; e. is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect the independence of the Director; or f. he is not a substantial shareholder of the company, i.e, owning two percent (2%) or more of the block of voting shares; and g. he is not less than twenty-one (21) years of age. Nominee directors appointed by an institution that has invested in, or lent money to, the company are also treated as independent Directors. 15. Merely because the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the company for the conduct of the business of the company. Every person connected with the company shall not fall within 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. It follows from the fact 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 for a criminal offence under the provisions. The liability arises from being in charge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. 13. Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anical repetition of the requirements under Section 141(1) will be of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and connivance or negligence and therefore, responsible under sub-section (2) of Section 141 of the Act. 39. From the above discussion, the following principles emerge: (i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction. (ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company. (iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases. (c) The answer to Question (c) has to be in the affirmative. The question notes that the Managing Director or Joint Managing Director would be admittedly in charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as Managing Director or Joint Managing Director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141. .. 20. The liability of a Director must be determined on the date on which the offence is comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The same was sent in the name of the petitioner as well as Mr. Ramesh Chand Jindal without even disclosing their designation or status in the said company. Even in the said complaint case filed by the respondent No. 2, it has wrongly been stated that the cheque was prepared and signed by the accused No. 2 (Mr. Suresh Jindal) as a Director of accused No. 3 (Company), whereas, the fact not in dispute is that the cheque was issued by the accused No. 1 (Mr. Ramesh Chand Jindal) and that too in his individual capacity. Nowhere in the complaint any averment has been made by respondent No. 2 as to how that petitioner is liable or responsible for the said dishonour of the cheque. It is no more res Integra that for fastening vicarious liability on the Director of the company or against any other person necessary averment has to be made in the complaint to show as to when and how at the time the offence was committed such a person was in charge of and was responsible to the company for the conduct or the business of the company as per the mandate of Section 141 of the N.I. Act and in the absence of such an averment the complaint against such a Director cannot be held to be maintainable. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being impleaded in the case. Even in the legal notice sent by respondent No. 2, the company was not put to notice nor anywhere in the complaint it has been disclosed that the present petitioner was in charge and responsible for the conduct of the business of the company and therefore in the absence of such an averment the complaint case filed by the respondent No. 2 cannot be held to be maintainable against the petitioner. The other irony of the case is that the person who is a drawer and signatory of the cheque in question has already died during the pendency of the case and due to that the complaint filed by the respondent No. 2 even cannot sustain against the deceased person as the liability of the criminal prosecution cannot be transferred upon the legal heirs of the deceased. , on the verdict of the Hon ble Supreme Court in Anita Malhotra V. Apparel Export Promotion Council and Anr. (2012) 1 SCC 520 with specific reference to paragraph 22 thereof, which reads to the effect:- 22. This Court has repeatedly held that in case of a Director, the complaint should specifically spell out how and in what manner the Director was in charge of or was responsib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons who are its directors or employees cannot be made vicariously liable. Only such person would be held liable if at the time when the offence is committed, he was incharge and responsible to the conduct of the business and affairs of the company. Merely being a director or employee of the company in absence of above factors will not make them liable. There being no specific averment attributing specific role describing the manner as to how the petitioners were incharge and responsible to the conduct of business affairs of the company, they could not be made liable for the offences alleged to have been committed by the company or the managing director. 9. The plea that the respondent/complainant was not aware as to the specific role and duties of the petitioners in the company that being their internal affair, was misconceived. Each and every director or employee of the company cannot be made liable vicariously for the offence committed by the company. As noted above, there was to be specific averment attributing liability of each person sought to be made liable for the company. If the respondent intended to make such employee or director of the company to be liable, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, will not be liable for an offence under Section 141 of the NI Act. In National Small Industries Corpn. [National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330 : (2010) 1 SCC (Civ) 677 : (2010) 2 SCC (Cri) 1113] this Court observed: (SCC p. 336, paras 13-14) 13. Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the Director. But the complaint should spell out as to how and in what manner Respondent 1 was in charge of or was responsible to the accused Company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability. 14. A company may have a number of Directors and to make any or all the Directors as accused in a complaint merely on the basis of a statement that they are in charge of and responsible for the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the effect:- 149. Company to have Board of Directors.- . .. (12) Notwithstanding anything contained in this Act,- (i) an independent director; (ii) a non-executive director not being promoter or key managerial personnel, shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently. , as laid down by this Court in Bhardwaj Thuiruvenkata Venkatavraghavan (supra) and Kanarath Payattiyath Balraj (supra), the petitioner being an Independent and a Non-Executive Director, in the absence of any specific role attributed against the petitioner for his active participation in the day to day affairs of the company and of taking all decisions of the company, where the petitioner was not a signatory to the cheques in question, vicarious liability cannot be fastened on the petitioner in the absence of any specific role attributed to him, in as much as, the contentions that have been sought to be ..... 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