Back
IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI
K. SURESH REDDY, J.
Ramaiah Konar Navneetha Krishnan, S/o S. Ramaiah Konar and Others – Petitioners
Versus
Athukuri Nagewara Rao, rep. BY P.P. Proprietor of Lakshmi Balaji Cotton Traders & Another – Respondents
Criminal Petition Nos. 4067, 4086, 4092 & 4094 Of 2017
Decided On : 01-12-2023
Negotiable Instruments Act - Liability of Directors - Sections 138 to 142 - The court discussed the liability of directors under Section 141 of the Negotiable Instruments Act, emphasizing the need for specific averments against the director showing their responsibility for the conduct of the company's business. The court held that mere designation as a director is not sufficient to establish liability and that strict interpretation of Section 141 is required. The court also clarified that managing directors or joint managing directors are inherently responsible, while other officers can be made liable only with specific averments of their role in the issue and dishonour of the cheque.
Fact of the Case:
The complaint alleged that the accused company's directors were responsible for the dishonour of a cheque issued by the company. The accused directors argued that they were not in charge of the company's day-to-day affairs and should not be criminally prosecuted.
Finding of the Court:
The court found that the complaint did not specify the role of the accused directors in the day-to-day affairs of the company, and therefore, the directors were not liable under Section 141 of the Act.
Issues: The main issue was whether the accused directors could be held criminally liable for the dishonour of the cheque under Section 141 of the Negotiable Instruments Act.
Ratio Decidendi: The court held that specific averments showing the director's responsibility for the conduct of the company's business are necessary to establish liability under Section 141 of the Act. Mere designation as a director is not sufficient to attract criminal liability.
Final Decision: The proceedings against the accused directors were quashed, and the criminal petitions were allowed.
ORDER :
Since all these criminal petitions, under Section 482 Cr.P.C., arise out of the same calendar case, in which the petitioners herein are arrayed as accused, they are heard together and are being disposed of by this common order.
2. Criminal Petition No. 4067 of 2017 is filed by the petitioner-accused No. 6; Criminal Petition No. 4086 of 2017 is filed by the petitioner-accused No. 4; Criminal Petition No. 4092 of 2017 is filed by the petitioners-accused Nos. 8 to 10 and Criminal Petition No. 4094 of 2017 is filed by the petitioners-accused Nos. 5 and 7 seeking to quash the proceedings against them in C.C.No. 317 of 2016 on the file of the Court of learned IV Additional Junior Civil Judge, Guntur, registered for the offences punishable under Sections 138 to 142 of the Negotiable Instruments Act, 1881 (for short, 'the Act').
3. In the complaint, respondent No. 1-complainant, Proprietor of Lakshmi Balaji Cotton Traders, Guntur, alleged that accused Nos. 2 to 10 are Directors of accused No. 1 company i.e. M/s. Shri Renuga Textiles Limited and they are responsible for conduct of day-to-day business affairs of accused No. 1 company. Accused No. 1 placed orders on respondent No. 1 for supply of cotton. Pursuant to the aforesaid purchase orders, respondent No. 1 supplied cotton to accused No. 1. In discharge of its liability against the bills raised by respondent No. 1 on accused No. 1, the latter had issued a cheque bearing No. 625460 dated 27-02-2014 for a sum of Rs.24,44,832/- drawn on S.B.I., SME Branch, Theni, Chennai, Tamil Nadu State, in favour of the former. When respondent No. 1 presented the cheque in its bank i.e. Karur Vysya Bank Limited, Service Branch, Guntur, the same was dishonoured with the endorsement 'payment stopped by drawer'. On 27-05-2014, respondent No. 1 received intimation of dishonor of the cheque from its banker. Thereafter, respondent No. 1 got issued a legal notice on 14-06-2014 calling upon the accused to make payment of the amount of the dishonoured cheque as per the provisions of Section 138 of the Act. Alleging that the accused did not pay the amount of the dishonoured cheque i.e. Rs.24,44,832/- to respondent No. 1 within the time stipulated, the latter filed the aforesaid complaint under Sections 138 to 142 of the Act.
4. Heard Sri D.Vijay Kumar, learned counsel, representing Sri T.S. Anirudh Reddy, learned counsel appearing for the petitioners-accused Nos. 4 to 10, and learned Assistant Public Prosecutor appearing for the respondent-State. None appeared for respondent No. 1-complainant.
5. Sri D.Vijay Kumar, learned counsel, emphatically argues that the petitioners are independent non –executive Directors of the accused company and in no way responsible for the conduct of day-to-day affairs of the accused company; that they are inducted in the company for their expertise or special knowledge in particular discipline and they are not in charge of the management of the company and that except reproduction of the statutory requirements, the complaint did not specify or elaborate the role of the petitioners in the day to day affairs of the accused company and therefore they could not be criminally prosecuted for the dishonour of the cheque in question.
6. Learned Assistant Public Prosecutor appearing for the respondent-State, on the other hand, opposes the criminal petitions and submits that the petitioners being Directors of the accused company are liable to be criminally prosecuted with regard to the dishonour of the cheque in question.
7. This Court has perused the entire material available on record.
8. A Director of a company is liable to be convicted for an offence committed by the company if he/she was in charge of and was responsible to the company for the conduct of its business or if it is proved that the offence was committed with the consent or connivance of, or was attributable to any negligence on the part of the Director concerned. In other words, for making a Director of a company l
Specific averments showing the director's responsibility for the conduct of the company's business are necessary to establish liability under Section 141 of the Negotiable Instruments Act.
Specific averments showing a Director's responsibility for the conduct of the company's business are necessary to establish liability under Section 141 of the Negotiable Instruments Act, 1881.
Directors cannot be held vicariously liable for a company's dishonoured cheque without specific allegations of their involvement in the company's operations, as required under Section 141 of the N.I.....
The necessity of specific averments in the complaint to establish the liability of the accused and the burden of proof on the accused to show lack of responsibility for the company's affairs.
Vicarious liability of a director in a company for dishonored cheques under Section 141 of the Negotiable Instruments Act.
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
