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IN THE HIGH COURT AT CALCUTTA
Bibek Chaudhuri, J.
Jairam Sridharan & Anr. - Appellants
Versus
Ashok Kumar Lakhotia & Anr. - Respondents
IA No: CRAN/1/2022 in Criminal Revision No. 592 of 2022
Decided On : 18-01-2023
QUASHING OF CRIMINAL PROCEEDINGS - VICARIOUS LIABILITY - DIRECTORS OF COMPANY - SECTION 420/406/468/477/477A/120B OF THE IPC - INSOLVENCY AND BANKRUPTCY CODE, 2016 - COMPANY PETITION - CORPORATE INSOLVENCY RESOLUTION PROCESS - REVERSE MERGER - APPROVAL OF RESOLUTION PLAN - APPOINTMENT OF DIRECTORS - NO CONNECTION WITH LOAN TRANSACTION - NO AUTHORITY TO SETTLE LOAN ACCOUNT - ABSENCE OF PRIMA FACIE CASE - MALAFIDE INTENT - QUASHING OF COMPLAINT.
Fact of the Case:
The petitioners, directors of a company that emerged from a reverse merger involving a company undergoing insolvency proceedings, were accused of offenses under Sections 420/406/468/477/477A/120B of the IPC for allegedly denying a one-time settlement of a loan account that had been approved by the previous company. The petitioners contended that they had no connection with the loan transaction or the previous company and that the subsequent directors could not be held liable for the acts of the previous directors.
Finding of the Court:
The court found that the petitioners were not connected with the loan transaction or the previous company and that they became directors of the merged company after the one-time settlement had been approved. The court also found that the complaint against the petitioners was malafide and instituted with an ulterior motive.
Issues: 1. Whether the petitioners, as directors of a company that emerged from a reverse merger involving a company undergoing insolvency proceedings, could be held vicariously liable for offenses allegedly committed by the previous company. 2. Whether the complaint against the petitioners was malafide and instituted with an ulterior motive.
Ratio Decidendi: 1. The principle of vicarious liability is not generally applicable in respect of offenses under the Indian Penal Code. 2. A company is a juristic person that acts through its officers, directors, etc., and if such a company commits an offense, the individual officer who has purported the commission of the offense on behalf of the company can be made an accused along with the company if there is sufficient evidence of his active role coupled with criminal intent. 3. Such vicarious liability of the directors cannot be imputed automatically in the absence of a statutory provision to this effect. 4. In the instant case, there was no specific allegation made in the written complaint against the petitioners, and no case under the relevant sections of the IPC was made out against them.
Final Decision: The court quashed the complaint against the petitioners, holding that the criminal proceeding was liable to be quashed as it was instituted maliciously with an ulterior motive and that there was no prima facie case against the petitioners.
JUDGMENT
Bibek Chaudhuri, J. - The petitioners have prayed for quashing of a complaint bearing No.CS 81045/2021 filed by the opposite parties alleging, inter alia, that the opposite parties filed the above mentioned complaint against the petitioners and six others alleging commission of offence under Section 420/406/468/477/477A/120B of the IPC. The learned Chief Metropolitan Magistrate took cognizance of offence against the persons including the petitioners and transferred the case to the 19th Court of the Metropolitan Magistrate for disposal. The learned Magistrate issued process against the petitioners and other accused persons under Section 204 of the Code of Criminal Procedure. It is alleged on behalf of the petitioners that they were erroneously arrayed as accused persons. They were neither impleaded with the company nor the directors of the company during the relevant period of time when the offences were alleged to have been committed. The petitioners were implicated as two of the accused persons by the complainant pleading a case of vicarious liability though the provisions of the IPC did not provide for imposition of vicarious liability and therefore process might not have been issued against the petitioners. The petitioners were appointed directors of Pinamal Capital and Housing Finance Limited (PCHFL) with effect from 7th October, 2021 and 30th September, 2021 respectively.
2. The case of the complainants, in brief, is that they availed a non housing home loan vide Loan Account No.CAL/032661 which was initially sanctioned vide letter dated 29th February, 2012 by First Blue Home Finance Limited which subsequently came to be known as Dewan Housing Finance Corporation Limited (DHFL). As collateral security for the said loan, the complainants mortgaged an immovable property situated at Liluah in the District of Howrah. It is further alleged by the complainant that they repaid loan regularly up to 2019 to 2020. Thereafter, due to Covid-19 and financial constraints, payment of loan become irregular. In October 2020, the complainants approached DHFL for One Times Settlement (OTS). After negotiation one time settlement was arrived at allowing the complainants to pay Rs.33,72,378 towards OTS in 3 equal tranches up to 30th December, 2020. The complainants accepted the OTS and made payment of entire money towards OTS within stipulated period of time. Thereafter, the authorised signatory of DHFL vide letter dated 4th January, 2021 acknowledged closure of loan account on payment of OTS by the complainants. DHFL also issued no due certificate and undertook to return the original property documents within 51 working days to the complainants. In June 2021, the complainant attended the office of PCHFL and requested for return of property documents however the accused No.4 took some time to return the said documents. Subsequently, the accused No.4 visited the office of the complainants and informed them that the loan account had not been settled. Rather 4 EMIs were due and payable by the complainants. He also stated that the loan account may be classified as a non performing asset in case of failure on the part of the complainants to repay the said EMIs. On 22nd June, 2021 the representatives of the complainants went to the office of PCHFL and met accused No.4 and handed over all copies of communications during the period between 28th October, 2020 and 4th January, 2021 stating, inter alia, that the loan account was already settled on payment of OTS. Accused No.2, however denied the authenticity of the communications contending that OTS had not been issued under the appropriate authority of DHFL. Subsequently, vide letter dated 11th June, 2021 PCHFL through its authorised Advocate demanded overdue amounts of the EMIs with a threat to initiate a proceeding under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI).
3. That on 1st December, 2021 the complainants lodged a comp
The principle of vicarious liability is not generally applicable in respect of offenses under the Indian Penal Code, and the directors of a company cannot be held automatically liable for the acts of....
Sufficient averments in a complaint against a director fulfill requirements of Section 141 of the NI Act for vicarious liability. Failure to respond to statutory notices under Section 138 infers liab....
Dishonour of cheque – Offence by company – Creeping up escalating liability to Chairpersons of large conglomerates/companies for cheques issued in day-to-day affairs of business of a company would un....
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.
Vicarious liability cannot be imposed on directors solely by virtue of their positions; specific allegations of wrongdoing must exist for criminal liability to be established.
Non-executive directors are not automatically liable under the Negotiable Instruments Act, and specific averments are required to establish vicarious liability.
Non-Executive Directors cannot be held liable under Section 141 of the Negotiable Instruments Act without specific averments demonstrating their involvement in the company's day-to-day affairs.
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