Non-executive directors cannot be held vicariously liable under Section 141 of the NI Act without specific allegations of their involvement in the company's financial affairs.

JUDGMENT :

SATISH CHANDRA SHARMA, J.

1. Leave granted.

2. The present appeals arise from the common Impugned Judgment and Order dated 28.11.2023, passed by the High Court of Delhi at New Delhi (the “High Court”), whereby the High Court dismissed the petitions filed under Section 482 of the Code of Criminal Procedure, 1973 (the “CrPC”). The petitions sought the quashing of criminal proceedings initiated against the Appellant(s) under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 (the “NI Act”).

BACKGROUND

3. The Appellant(s) K.S. Mehta, and Basant Kumar Goswami, were appointed as directors of M/s Blue Coast Hotels & Resorts Ltd. (Accused No. 1/Company) at different times. K.S. Mehta was appointed as an additional director on 29.06.2001, while Basant Kumar Goswami was appointed as a director on 16.04.1998. Appellant(s) were designated as non-executive director in compliance with clause 49 of the Listing Agreement prescribed by the Securities and Exchange Board of India (the “SEBI”). Their role was confined to governance oversight without any executive authority or financial decision-making power in the company.

4. The dispute stems from an Inter-Corporate Deposit (“ICD”) agreement dated 09.09.2002, executed between the accused company and the Respondent to avail a financial facility of Rs.5,00,00,000 (Rupees Five Crores) against certain securities for a period of 180 days. Notedly, the Appellant(s) were neither in attendance at the board meeting held on 09.09.2002, wherein the said transaction was approved, nor were they signatories to the agreement or any related financial instruments.

5. The liability towards repayment of the ICD culminated in the issuance of the following post-dated cheques:

• Cheque No. 842628 dated 28.02.2005 for Rs.50,00,000/-.

• Cheque No. 842629 dated 30.03.2005 for Rs.50,00,000/-.

Upon presentation, both cheques were dishonored due to insufficient funds. Following the dishonor, the Respondent issued legal notices demanding payment, but no remedial action was taken by the company. Consequently, criminal proceedings were initiated against all directors, including the Appellant(s).

6. Moreover, the executed ICD agreement contained an arbitration clause to be invoked in case of any dispute between the parties. The Appellant(s) were unaware of such clause(s) or the terms of the agreement at the time of execution and only came to know of them later. A memorandum of settlement was executed on 27.05.2003 between the Respondent and the accused company, Accused No. 2, Accused No. 6, and Morepen Laboratories Ltd., to resolve financial disputes. Pertinently, the Appellant(s) were not a party to this settlement.

7. The Appellant/K.S. Mehta resigned from the company on 10.11.2012, whereas Appellant/Basant Kumar Goswami continued as non-executive director until 2014. Notwithstanding, the Registrar of Companies (“ROC”) records and Corporate Governance Reports (“CGR(s)”) submitted to the stock exchange confirmed their non-executive status and indicated that they did not draw any remuneration apart from a nominal meeting fee. Notedly, neither Appellant ever submitted Form 25(C), which is mandatory for executive and managing director drawing remuneration, further substantiating their lack of involvement in financial affairs of the company.

8. The following complaints under Section 138 NI Act were filed against the Appellant(s) before the Court of Additional Chief Metropolitan Magistrate, New Delhi:

1. Complaint No. 15857 of 2017, filed on 10.11.2005, qua Cheque No. 842629.

2. Complaint No. 15858 of 2017, filed on 25.10.2005, qua Cheque No. 842628.

9. The High Court dismissed the Appellant(s)’ petition under Section 482 CrPC bearing Crl.M.C. No(s). 1643, 1645 and 1345 of 2019 seeking quashing of the proceedings pending before the Court of Additional Chief Metropolitan Magistrate, New Delhi.

SUBMISSION BY THE PARTIES

10. The learned counsel for the Appellant(s) submitted that they had no role in the company’s fi