TaxTMI 
TaxTMI 
2011 (3) TMI 1843
X X X X Extracts X X X X
X X X X Extracts X X X X
....Section 141 N.I. Act. 2. Briefly stated, facts relevant for the disposal of these petitions are that Respondent No. 2 M/s. ACME Resources filed above referred complaint No. 16/1/2010 under Section 138 N.I. Act read with Section 141 Negotiable Instruments Act (N.I. Act) against M/s. Hotel Indraprastha, a unit of Hotel Queen Road Pvt. Ltd., Ram Purshotam Mittal, its earlier Chairman and the Petitioners who are the Chairman and Directors of M/s. Hotel Indraprashta. 3. It is alleged in the complaint that in May, 2008, Respondent No. 3 Ram Purshotam Mittal, the then Chairman of Hotel Indraprastha (a unit of Hotel Queen Road Pvt. Ltd.) approached Respondent No. 2 M/s. ACME Resources Pvt. Ltd. for a loan of Rs. 5 crores to be invested in working capital of the hotel. Respondent No. 2/complainant acceded to the request and advanced Rs. 5 crores at an interest @ 33.60% per annum through two cheques for Rs. 2.50 crores each both dated 06.05.2008 and drawn on HDFC Bank Ltd., K.G. Marg, Connaught Place. Those cheques were duly encashed. 4. It is also claimed in the complaint that Respondent No. 2 Ram Purshotam Mittal assured that the loan amount would be repaid within one year along with in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the Petitioners are roped in on the allegation that they were the directors of the company at the time of commission of offence. Learned Counsel contended that under Section 141 N.I. Act, a person can be held vicariously liable for the offence under Section 138 N.I. Act committed by the company provided at the time of commission of offence, he was in charge of and was responsible to the company for the conduct of business of the company and every person connected with the company shall not file within the ambit of Section 141 N.I. Act. Learned Counsel argued that in the instant case, but for a vague allegation that the Petitioners were the directors of the accused company and in charge of day to day affairs of the company, there is no specific allegation which could, prima facie, show as to how and in what manner the Petitioners were in charge and responsible for the day to day affairs of the company and what were their acts and functions which were being discharged by them so as to bring them within the ambit of Section 141 N.I. Act. Learned Counsel further submitted that there is no specific averment in this regard even in the affidavit evidence furnished by the Petitioner duri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ovision. It is 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, who 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 liability arises from being in charge of and responsible for the conduct of 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. Conversely, a person not holding any office or designation in a company may be liable if he satisfies the main requirement of being in charge of and responsible for the conduct of business of a company at the relevant time. Liability depends on the role one plays in the affairs of a company and not on designation or status. If being a director or manager or secretary was enough to cast criminal liability, the section would have said so. Instead of "every person" the section would have said "every director, manager or secretary in a company....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the requirement of Section 141 N.I. Act to hold the Petitioners vicariously liable for the offence committed by the company is not fulfilled. Even in the affidavit evidence given by the Respondent before the Magistrate, there is no mention as to how and in what manner the Petitioner directors were in-charge of or were responsible to the company for its day to day affairs and conduct of business. Thus, I am of the considered view that the impugned order of learned M.M. dated 05.05.2010 summoning the Petitioners Vikram Mittal, Jagdish Kumar Gupta, Om Dutt Sharma and Satyapal Talwar for the offence under Section 138 N.I. Act committed by the company with the aid of Section 141 N.I. Act is not sustainable in law as there is neither a specific allegation nor prima facie evidence on record to show that the Petitioners were In charge and responsible for the conduct of the business and the day-to-day affairs of Hotel Indraprastha. 15. The case of the Petitioner Ashok Kumar Mittal, however, stands on a different footing. On perusal of the complaint under Section 138 N.I. Act filed by Respondent No. 2, it transpires that as regards the Petitioner Ashok Mittal, the complainant has specifical....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the complainant in discharge of any debt or other liability (c) the said cheque is returned unpaid/dishonored. It is contended that it is not alleged in the complaint that Petitioner Ashok Mittal was responsible for the conduct of business of the company or the management of its day to day affairs when the cheques were issued by Respondent No. 3, the then Chairman of the company and the cheque was dishonored. Therefore, the Petitioner Ashok Mittal who subsequently became the Chairman of the company cannot be held vicariously liable for the offence committed by the company at the time when he was not concerned with the business/affairs of the company. 17. Above contention of learned Counsel for the Petitioners is based upon incorrect reading of Section 138 N.I. Act. In order to correctly appreciate the import of Section 138 N.I. Act, it is necessary to have a look on the proviso to Section 138 N.I. Act, which reads thus: Provided that nothing contained in this section shall apply unless (a) The cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier. (b) The payee or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs of the company to commit fraud by ensuring that the person who was responsible for the management of business and day to day affairs of the company from the date of issue of the cheque till its dishonor is replaced by some other person before the service of notice of demand. In such a situation, both the initial manager of the company and subsequent manager of the company would escape liability under Section 138 N.I. Act, the initial manager claiming the benefit of proviso to Section 141 N.I. Act by taking a plea that since at the time of issue of demand notice, he was not concerned with the management and business of the company he, by no means, was in position to ensure the release of the payment of demanded amount, and the subsequent manager replaced the initial one, would take a plea that he was not concerned with the management of the company at the time when the cheque in question was issued and dishonored. This can never be the intention of the legislature. Thus, I do not find any merit in the contention of learned Counsel for the Petitioners. 21. In view of the above, I am of the considered view that most important ingredient of Section 138 N.I. Act is proviso (c) to Se....