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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
N.J.Jamadar, J.
Mahesh Sharma – Appellant
Versus
State of Maharashtra – Respondent
Criminal Writ Petition No. 539 of 2021
Decided On : 06-06-2022
Negotiable Instruments Act - Vicarious Liability - Sec. 138, Sec. 141 - [Siddharth Tubes Limited] - [Negotiable Instruments Act, 1881] - Sec. 138, Sec. 141
Fact of the Case:
The petitioner, an additional Director of Siddharth Tubes Limited, was accused of dishonoring cheques issued by the company. The petitioner challenged the order of issuance of process, contending that he had no involvement in the transactions leading to the issuance of the cheques. The lower courts declined to interfere, leading the petitioner to invoke the writ jurisdiction of the Court.
Finding of the Court:
The Court found that the petitioner's appointment as an independent non-executive director was supported by unimpeachable documents. It noted that the complaint lacked specific averments to implicate the petitioner and that the circumstances indicated that the petitioner could not have been in charge of and responsible for the conduct of the company's business at the relevant time. The Court held that making the petitioner face trial would amount to an abuse of the process of the Court.
Issues: The main issue was whether the petitioner, as an additional Director, could be held vicariously liable for the dishonor of cheques issued by the company.
Ratio Decidendi: The Court emphasized the necessity of specific averments in the complaint to establish vicarious liability under Sec. 141 of the Negotiable Instruments Act, 1881. It held that the mere fact of being a Director is not sufficient to establish liability and that it must be averred as a fact that the person sought to be arraigned was in charge of and responsible for the conduct of the company's business at the time of the offence.
Final Decision: The Court allowed the petition, quashed the impugned judgment and order, set aside the order issuing process against the petitioner, and dismissed the complaint against the petitioner. The complaint was allowed to proceed against the other accused.
JUDGMENT
1. Rule. Rule made returnable forthwith and, with the consent of the learned Counsels for the parties, heard finally.
2. This petition under Article 227 of the Constitution of India and Sec. 482 of the Code of Criminal Procedure, 1973 ("the Code") assails the legality, propriety and correctness of the judgment and order dtd. 27/1/2020 passed by the learned Additional Sessions Judge, Grater Bombay, in Criminal Revision Application No. 876 of 2019, whereby the revision preferred by the petitioner against an order of issuance of process dtd. 24/8/2018 passed by the learned Metropolitan Magistrate, 23rd Court, Esplanade, Mumbai, in CC No.1145/SS/2018, for the offence punishable under Sec. 138 read with Sec. 141 of the Negotiable Instruments Act, 1881 ("the N. I. Act, 1881") came to be dismissed, affirming the said order of the learned Magistrate.
3. The background facts necessary for determination of this petition can be stated as under:
(a) Siddharth Tubes Limited is a company registered under the Companies Act, 1956. Mr. Nainesh Jayantilal Sanghvi is the Managing Director of Siddharth Tubes Limited. At the instance of Mr. Nainesh Sanghvi, the petitioner became an additional Director of Siddharth Tubes Limited, under independent category, with effect from 9/11/2017 as Mr. Umesh Dube its former independent director resigned from the said position.
(b) Anmol Steel Processors Pvt. Ltd., respondent no.2, a company registered under the Companies Act, 1956, lodged a complaint being CC No.1145/SS/2018, for the offence punishable under Sec. 138 read with Sec. 141 of the N. I. Act, 1881, impleading the petitioner as accused no.4 apart from Siddharth Tubes Limited (A1), Mr. Nainesh Sanghvi (A2), Mr. Shreyans Gupta, wholetime Director and CFO of Siddharth Tubes Ltd. (A3), with the allegation that the accused had purchased Hot Rolled P and O Coil and other steel material from the complainant. Invoices were allegedly raised during the period 31/8/2014 to 22/5/2015. The accused had made certain payments and they were adjusted against the due amount on first in first out basis. As of 31/12/2017, the accused owed a sum of Rs.4, 05, 53, 594.00 towards the goods sold and delivered by the complainant. In order to discharge the said liability the accused had issued nine cheques dtd. 30/12/2017 drawn on Oriental Bank of Commerce, Indore, aggregating to a sum of Rs.1, 77, 63, 642.00 payable on 30/12/2017. Upon presentment, the cheques were returned unencashed with the remarks, "account closed". A statutory demand notice was served on the accused on 16/2/2018 to which accused gave reply raising false and untenable contentions. As the accused committed default in payment of the amount covered by the dishonored cheques within the stipulated period, the complainant lodged the complaint. Process came to be issued against all the accused for the offence punishable under Sec. 138 read with Sec. 141 of the N. I. Act, 1881.
(c) The petitioner, upon being apprised of the facts, assailed the order of issuance of process by preferring revision application before the Court of Session. The main thrust of the challenge was that the petitioner had no concern whatsoever with the transaction between Siddharth (A1) and the complainant, which had allegedly taken place in the year 2014 - 2015. The petitioner was inducted as an independent Director of Siddharth (A1) on 9/11/2017. The petitioner was neither in-charge of nor responsible for the day to day affairs of Siddharth (A1). The petitioner was even not aware of the issue of the subject cheques by Siddharth (A1). In the circumstances, the impleadment of petitioner as an accused by invoking the provisions under Sec. 141 of the N. I. Act, 1881 was wholly unwarranted. The learned Magistrate, according to the petitioner, had committed a grave error in roping in the petitioner despite absence of necessary averments in the complaint and material to substantiate the case of the complainant.
(d) The learned Additional
Point of Law : Where there is not even an averment against the Managing Director or joint Managing Director of the Company therein. [Para 11]
The main legal point established in the judgment is the requirement for specific averments and unimpeachable evidence to establish vicarious liability of directors in cases of cheque bounce under Sec....
Dishonour of cheque – Contents of notice, reply given by noticee and contents of complaint would form an important part of arraigning accused into proceedings under Section 138 of NI Act.
The liability of the persons who are sought to be prosecuted by invoking the provisions contained in section 141 of the Act, 1881 is fairly crystallized. The court emphasized the need for basic averm....
Specific averments are necessary to establish the liability of a Director under Section 141 of the Negotiable Instruments Act; mere designation is insufficient.
The legal principle established is that a director, even if designated as an independent Non-Executive Director, can be held vicariously liable for the dishonor of a cheque under section 138 of the N....
An individual in a company cannot be vicariously liable for criminal offenses under the NI Act unless they are responsible for the company's conduct at the time of the offense.
Specific averments regarding a director's responsibility for a company's conduct are essential for vicarious liability under Section 141 of the Negotiable Instruments Act.
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