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High Court Of Calcutta
Tapan Mukherjee, J.
A.K.GOENKA - Appellant
Versus
MAGMA LEASING LIMITED - Respondent
C. R. R. 3623 Of 2006
Decided On : 07/18/2007
NEGOTIABLE INSTRUMENTS ACT - SECTION 138/141 - QUASHING OF PROCEEDINGS - VICARIOUS LIABILITY OF COMPANY DIRECTORS - ESSENTIAL AVERMENTS IN COMPLAINT - EFFECT OF WITHDRAWAL OF CASE AGAINST CO-ACCUSED - SPLITTING UP OF CASE AGAINST COMPANY
Fact of the Case:
Petitioner, a Director of a company, challenged the maintainability of a complaint case against him under Section 138/141 of the Negotiable Instruments Act for dishonor of cheques issued by the company. The petitioner contended that the mere fact of being a Director was insufficient to establish vicarious liability and that the complaint lacked specific averments regarding his responsibility for the conduct of the company's business.
Finding of the Court:
The Court observed that Section 141 of the Negotiable Instruments Act embodies the principle of vicarious liability for company Directors and that the complaint contained the necessary averments to satisfy the requirements of the section. The Court held that the petitioner, as a Director in charge of and responsible for the company's day-to-day business, could be held vicariously liable for the offense committed by the company.
Issues: 1. Whether the mere fact of being a Director of a company establishes vicarious liability under Section 141 of the Negotiable Instruments Act? 2. Whether the complaint contained sufficient averments to satisfy the requirements of Section 141 of the Negotiable Instruments Act? 3. Whether the withdrawal of the case against co-accused under Section 257 of the Code of Criminal Procedure amounted to acquittal of the petitioner? 4. Whether the splitting up of the case against the company barred the continuation of proceedings against the petitioner?
Ratio Decidendi: 1. The mere fact of being a Director of a company does not, by itself, establish vicarious liability under Section 141 of the Negotiable Instruments Act. However, if the Director was in charge of and responsible for the conduct of the company's business at the time of the offense, vicarious liability may arise. 2. The complaint must contain specific averments stating that the accused person, at the time of the offense, was in charge of and responsible for the conduct of the company's business. It is not necessary to reproduce the exact wording of Section 141, but the averments must be clear and sufficient to enable the Court to arrive at a prima facie opinion of vicarious liability. 3. Withdrawal of a case against co-accused under Section 257 of the Code of Criminal Procedure does not amount to acquittal of the remaining accused. Withdrawal under Section 257 is a discretionary power of the Magistrate and does not imply that the allegations against the withdrawn accused were baseless. 4. Splitting up of a case against a company does not bar the continuation of proceedings against other accused, including company Directors. The prosecution may proceed separately against the company and its officers, provided that the essential elements of the offense, such as the issuance of dishonored cheques and failure to make payment within the statutory period, are established.
Final Decision: The Court dismissed the petitioner's application to quash the criminal proceedings against him, holding that the complaint contained the necessary averments to satisfy the requirements of Section 141 of the Negotiable Instruments Act and that the petitioner could be held vicariously liable for the offense committed by the company.
( 1 ) THIS application under section 401/482 of the Code of Criminal Procedure registered as C. R. R. No. 3623 of 2006 at the instance of the accused is directed for quashing the proceeding being case No. C 4482 of 1999 pending in the 12th Court of ld. Metropolitan Magistrate, Calcutta under section 138/141 of the Negotiable Instruments Act against the petitioner/ accused.
( 2 ) THE respondent/complainant filed complaint case before the ld. Chief metropolitan Magistrate, Calcutta alleging that in discharge of existing liability arising out of a lease agreement between the complainant and the accused company dated 1. 2. 96, the accused-company Ms. Premier Vinyl Flooring Limited issued two cheques bearing numbers 790939 dated 1. 6. 99 and 790940 dated 1. 9. 99 on Canara Bank S. D Area New Delhi each for Rs. 4,35,000/- in favour of the complainant company. The said cheques were presented for clearance by the complainant company through Oriental Bank of Commerce, Park Street branch, Calcutta but the same were returned dishonoured with the remark 'not arranged for' and 'exceeds arrangement'. The complainant company served demand notice upon the accused No. 1 company in the petition of complaint and notice was also sent to the accused Nos. 2 to 10 including the present petitioner/accused which were returned with postal remark "refused". The accused company did not pay any amount and as such the company was liable for penal provision of section 138 of the N I Act and accused Nos. 2 to 10 were vicariously liable under section 138/141 of the N I Act.
( 3 ) COGNIZANCE was taken by the lld. Chief Metropolitan Magistrate and the case was then transferred to the ld. Metropolitan Magistrate, 12th Court who issued process against the accused persons. The accused Nos. 3, 4 and 5 including the petitioner who is accused No. 9 in the petition of complaint as Director of the company appeared before the ld. Magistrate. The complainant withdrew the case against accused Nos. 2, 4, 8 and 10 at different times by filing petition before ld. Magistrate. On 15. 10. 01 the petitioner and two others filed application challenging the maintainability of the same case before the ld. Magistrate and the said petition was rejected by the order dated 22. 3. 2004.
( 4 ) CHALLENGING the order of ld. Magistrate dated 22. 3. 04 petitioner moved the Hon'ble Court on 19. 5. 04 and this Court disposed of the said revision application being C. R. R. No. 1309 of 2004 on 30. 08. 2004 with certain directions. On 21. 12. 04, ld. Magistrate split up the case of accused No. 1 company. On 20. 1. 05, petitioner filed an application to the ld. Magistrate for dropping proceeding challenging the continuation of the proceeding against him and accused No. 3 after splitting up the case against accused company. On 13. 3. 06, the said application was rejected by the ld. Magistrate. Against that order the petitioner moved the application under section 397 of Cr. PC before ld. Chief judge, Sessions Court, Bichar Bhavan and on 30. 08. 06 the said application was rejected by the ld. Chief Judge, City Sessions Court. Then the petitioner accused No. 9 in the complaint case has filed this instant application for quashing the proceeding.
( 5 ) LD. Counsel for the petitioner/accused has contended that the mere fact that the accused/petitioner is the Director of the accused company is not sufficient to prove the vicarious liability of the accused for the offence alleged to have been committed by the company under section 138 of the N I Act and the provision of section 141 of the N I Act cannot be invoked. Within the four corners of the petition of complaint and initial ejahar there is nothing to show as to how and in what manner the petitioner was responsible for the conduct of the business of the company. It is not stated how the accused was responsible for dishonour of the cheques. There is no specific averment about the role of the accused/petitioner in the alleged off
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