Directors of a company can be presumed to be in charge of the company's affairs, and the burden of proof lies on the accused to show otherwise. All directors of a company are responsible for offenses committed under Section 138 of the Negotiable Instruments Act, unless excepted by law.

( 1 ) THIS petition under Section 482 Cr. P. C is preferred by the petitioner challenging the summoning order dated 8th December, 2005 whereby the accused was summoned in a case under Section 138 of Negotiable Instruments Act.

( 2 ) THE plea of the accused is that the accused was merely a sleeping director of the company and no specific role has been assigned by the complainant as to how the accused was managing the affairs of the company and only vague allegations have been made that the accused being a director, was responsible for management of the company. The other plea taken by the accused is that at the time when instrument was executed, the accused had already resigned from the directorship and he was not liable for dishonour of the cheque and the instrument was not signed by him.

( 3 ) WHEN a cheque is issued by a company to a supplier or to any person against liability, the person only knows that the cheque was issued by the company. He may not be knowing the directors of the company. A creditor or supplier need not come in contact with directors of the company. He may be dealing with lower level management of the company. When a cheque is dishonoured, he makes efforts to find out as to who were the directors. This information he gets from the Articles of Association of the company or from ROC office. The documents which are prepared by the companies for public consumption, like Annual Reports, Articles of Association and Returns filed with roc Office do not disclose as to who are the sleeping directors and who are active directors. This information is within the special knowledge of the company i. e Board of Directors managing the company as per law. Section 106 of the Evidence Act provides that where a fact is in the special knowledge of a person, the burden of proving that fact lies on him. If any director of the company claims that despite being the director and legally responsible for management of the company in terms of the Companies Act, he was not the person looking after the affairs of the company, this fact has to be proved by him by cogent evidence before the trial Court concerned. Management of a company is an internal affair of the company. A creditor or supplier is not supposed to know neither can be presumed to know as to who are the sleeping directors or actively involved directors in the management of the company or who were the directors only lending their names. Only a director can prove all this before the trial court.

( 4 ) THE Supreme Court in N. Rangachari vs. B. S. N. L 2007 Crl. L. J 2448 observed as under:

"13. A company, though a legal entity, cannot act by itself but can only act through its directors. Normally, the Board of Directors act for an on behalf of the company. This is clear from Section 291 of the Companies Act which provides that subject to the provisions of that Act, the Board of Directors of a company shall be entitled to exercise all such powers and to do all such acts and things as the Company is authorized to exercise and do. Palmer described the position thus:

" A company can only act by agents, and usually the persons by whom it acts and by whom the business of the Company is carried on or superintended are termed directors. . . . . "

It is further stated in Palmer that:

"directors are, in the eye of law, agents of the company for which they act, and the general principles of the law of principal and agent regulate in most respects the relationship of the company and its directors. "

The above two passages were quoted with approval in R. K. Dalmia and Ors. vs. The Delhi Administration[ (1983) 1 SCR 253 at Page 300]. In Guide to the companies Act by A. Ramaiya (Sixteenth Edition) this position is summed up thus:

" All the powers of management of the affairs of the company are vested in the Board of Directors. The Board thus becomes the working organ of the company. In their domain of power, there can be no interference, no even by shareholders. The directors as a board

Click Here to Read the rest of this document