The sufficiency of materials for taking cognizance of alleged offences and the liability of a non-executive Director in a prosecution under Section 138 of the N.I. Act.

ORDER :

This is a petition filed under Section 482 of the Code of Criminal Procedure (hereinafter referred as ‘Cr.P.C’ for convenience) to quash complaint in C.C. No.1233 of 2015 on the files of the Judicial First Class Magistrate Court-VIII, Maradu, Ernakulam, on urging that the same is an abuse of the process of Court. The petitioners are accused Nos. 2 and 3 in the above case, who are citizens of United States of America.

2. I would like to refer the parties in this Crl.M.C as 'accused' and 'complainant', for convenience.

3. Heard the learned senior counsel for the accused/petitioners in detail as well as the learned Public Prosecutor appearing for the State. Though, notice issued to the 1st respondent/complainant, the complainant did not turn up.

4. It is submitted by the learned senior counsel for the accused/petitioners that, the sum and substance of the complaint, which led to cognizance of offences under Sections 406 and 420 read with 34 of IPC, is presentation of cheques entrusted by the complainant as part of business dealings and consequential filing of prosecution permissible under Section 138 read with 142 of the Negotiable Instruments Act, 1881 (hereinafter referred as ‘N.I. Act’ for convenience), on dishonor of the said cheques. According to the learned senior counsel for the accused/petitioners, mere launching of prosecution, on getting cheques dishonored for want of funds, by itself, for any reason, would not constitute offences punishable under Sections 406 or 420 of IPC. If malicious prosecution of this nature is allowed to sustain, the same would be we aponized to beat the prosecution launched under the N.I. Act, by all accused.

5. Secondly, it is argued by the learned senior counsel for the accused that, even otherwise, prosecution as against the accused/petitioners, who are non-executive directors of the Company is not legally permissible. In this connection, the learned senior counsel placed decision of the Apex Court reported in [AIR 2022 SC 3548] Sunita Palita and Others v. Panchami Stone Quarry and brought the attention of this Court into paragraph Nos. 29, 35, 38, 42 and 43 of the said decision. On perusal of the same, the Apex Court, referred the decision reported in [(2014) 16 SCC 1] Pooja Ravinder Devidasani v. State of Maharashtra and Another, where it was held as under:

“Non-executive Director is no doubt a custodian of the governance of the company but is not involved in the day-today affairs of the running of its business and only monitors the executive activity. To fasten vicarious liability Under Section 141 of the Act on a person, at the material time that person shall have been at the helm of affairs of the company, one who actively looks after the day-to-day activities of the company and is particularly responsible for the conduct of its business. Simply because a person is a Director of a company, does not make him liable under the NI Act. Every person connected with the Company will not fall into the ambit of the provision. Time and again, it has been asserted by this Court that only those persons who were in charge of and responsible for the conduct of the business of the Company at the time of commission of an offence will be liable for criminal action. A Director, who was not in charge of and was not responsible for the conduct of the business of the Company at the relevant time, will not be liable for an offence Under Section 141 of the NI Act.”

6. In view of the above arguments, the questions arose for consideration are:

1. Whether, the learned Magistrate found sufficient materials, prima facie, while taking cognizance of offences, alleged to be committed by petitioners under Sections 406 and 420 read with 34 of IPC?

2. What are the essentials to constitute offences punishable under Sections 406 and 420 of IPC?

3. Whether a non-executive Director of a Company, who is not a custodian of the governance of the Company, not involved in the day-to-day affairs of the running of its business and o