Back
IN THE HIGH COURT OF DELHI AT NEW DELHI
Sudhir Kumar Jain, J.
K. S. Mehta - Appellant
Versus
M/s Morgan Securities & Credits Pvt. Ltd . - Respondent
Crl. M.C. 1643 of 2019 & Crl. M.A. 6576 of 2019, Crl. M.A. 36906 of 2019
Decided On : 28-11-2023
NI Act - Vicarious Liability - Sections 138, 141
Fact of the Case:
The respondent, M/S Morgan Securities & Credits Pvt. Ltd., filed a complaint under sections 138/141/142 of the Negotiable Instruments Act, 1881 (NI Act) and 420 IPC against the accused for dishonoring a cheque issued under an Inter Corporate Deposit (ICD) facility. The trial court opined that a prima facie case was made out against the accused, including the petitioner, who was an independent Non-Executive Director of the accused company.
Finding of the Court:
The court dismissed the petitioner's challenge to the impugned order, holding that the complaint contained sufficient averments to make the petitioner vicariously liable for the dishonored cheque, and that the petitioner's role as a director was not sufficient to absolve him from liability.
Issues: The main issue was whether the petitioner, as an independent Non-Executive Director, could be held vicariously liable for the dishonored cheque under section 138 of the NI Act.
Ratio Decidendi: The court held that the complaint contained specific averments attributing responsibility to the petitioner for the conduct of the business of the accused company, and that the petitioner's designation as an independent Non-Executive Director did not absolve him from vicarious liability under section 141 of the NI Act.
Final Decision: The petition was dismissed, and the court upheld the trial court's opinion that a prima facie case existed against the petitioner for the offense under section 138 of the NI Act.
JUDGMENT
1. The present petition is filed under section 482 of the Code of Criminal Procedure, 1973 (hereinafter referred to as 'the Code') to set aside the order dated 29.01.2019 (hereinafter referred to as the 'impugned order') passed by the Court of Sh. N.K Malhotra Additional Sessions Judge / Special Judge,CBI-02, Patiala House Courts, New Delhi in Criminal Revision bearing no.539/2018 titled as K. S. Mehta VM/S Morgan Securities& Credits Pvt. Ltd and order dated 11.10.2018 passed by the court of Sh. Dharmender Singh, Metropolitan Magistrate - 05, Patiala House Courts, New Delhi in Complaint Case bearing no.15858/2017 titled as M/S Morgan Securities& Credits Pvt. Ltd. V Blue Coast Hotels & Resorts Ltd.& others.
2. M/S Morgan Securities and Credits Pvt. Ltd. (herein referred to as 'the respondent/the complainant') through its Authorized Representative Mahender Gautam filed a complaint under sections 138/141/142 of Negotiable Instruments Act, 1881 (hereinafter referred as 'NI Act') and 420 IPC titled as M/S Morgan Securities & Credits Pvt. Ltd. V Blue Coast Hotels & Resorts Ltd.& others bearing no15858/2017 on the allegations that the accused no. 2 namely Arun Suri with the consent of the accused no.3 to 6 namely Mamta Suri, Basant Kumar Goswami, K. S. Mehta (the petitioner) and the Sushil Suri on behalf of the accused no.1 known as Blue Coast Hotels & Resorts Ltd. had approached the respondent/the complainant for the financial assistance for business purposes by way of Inter Corporate Deposit (ICD) facility with a promise to repay back the amount of the ICD as per the terms mutually agreed and reduced in writing by way of an Inter Corporate Deposit Agreement dated 09.09.2002. The respondent/complainant paid Rs.5,00,00,000/-(Rs. five crores only) under the ICD facility to the accused(s) vide cheque bearing no. 227605 dated 09.09.2002 drawn on HDFC Bank, K.G. Marg, New Delhi and Demand Promissory Note and Inter Corporate Deposit Receipt were also executed in favour of the respondent /the complainant besides other documents. The accused (s) were required to pay Rs.5,00,00,000/- (Rupees five crores only) after expiry of 180 days from the date of receipt of ICD, i.e. on 08.03.2003 along with interest as agreed.
2.1 The respondent/the complainant has extended the financial assistance to the accused no. 1 to the tune of Rs.5,00,00,000/-(Rupees Five Crores Only) according to the usual prevailing corporate convention and, believing and acting upon promises of the accused(s) persons. The accused no. 2 is the managing Director and Authorized Signatory, the accused no.3 to 5 are the Directors, and the accused no.6 is the Authorized Signatory of the accused no.1 and are in charge of day to day affairs and are responsible for the conduct of the business of the accused no.1 and for all acts and deeds committed by or on behalf of the accused no. 1.
2.2 The respondent/the complainant also filed / initiated arbitration proceedings against the accused No. 1, 2 and the accused no.6 and M/s Morepan Laboratories Ltd. joined as parties during the Arbitration proceedings. During the arbitration proceedings, a compromise took place between the accused no. 1, 2 & 6 and M/s Morepan Laboratories Ltd. and the respondent/the complainant and a Memorandum of Settlement dated 27.05.2003 was signed and accordingly the Arbitrator passed a Consent Award on 21.07.2003. Thereafter the accused no.2 on behalf of the accused no. 1 with the consent and knowledge of the accused No.3 to 6 have signed and issued several cheques and most of them got dishonoured. The accused no.2 on behalf of the accused no.1 with the consent of the accused no.3 to 6 towards part payment of the outstanding bill had issued the cheque bearing no 842628 dated 28.02.05 amounting to Rs. 50,00,000/- drawn on ICICI Bank Ltd., Connaught Place, New Delhi (hereinafter referred as 'cheque in question'). The respondent/the complainant presented cheque in question to its banker HDFC Bank for encashment
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....
(1) Dishonour of cheque – Impleadment of all Directors of Accused Company on the basis of a statement that they are in charge of and responsible for conduct of business of company, without anything m....
Vicarious liability under Section 141 of the NI Act requires proof that a director was in charge of the company at the time the offence was committed, mere prior association is insufficient.
Vicarious liability under the Negotiable Instruments Act requires proof of a director's active involvement and responsibility in the company's operations, not merely their title.
Specific averments are necessary to establish the liability of a Director under Section 141 of the Negotiable Instruments Act; mere designation is insufficient.
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.
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....
Non-executive directors are not automatically liable under the Negotiable Instruments Act, and specific averments are required to establish vicarious liability.
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
