Liability of directors under Section 138 of the Negotiable Instruments Act depends on their active role and responsibility for the company's business conduct, not merely their directorship.

Headnote:
Negotiable Instruments Act - Quashing of Proceedings - Section 138 of the Negotiable Instruments Act, 1881 - Summary
Fact of the Case:

The accused were directors of a company accused of dishonoring a cheque issued as security. They sought to quash the proceedings against them, arguing that the complaint did not disclose their involvement in the offense.
Finding of the Court:

The court analyzed the complaint and legal provisions, finding that the accused directors' liability depended on their role in the company's business activities and their responsibility for the conduct of the company's business.
Issues: The key issue was whether the accused directors could be held liable for the offense under Section 138 of the Negotiable Instruments Act, based on their positions and responsibilities within the company.
Ratio Decidendi: The court held that the accused directors could only be held liable if they were in charge of the company's business and responsible for its conduct at the time of the offense, as per Section 141 of the Act. The court emphasized that mere directorship did not automatically establish liability.
Final Decision: The court quashed the proceedings against the accused directors, as the complaint did not sufficiently establish their active involvement in the offense, preventing the abuse of legal process.

ORDER :

Criminal Petition No.11823 of 2013 is filed on behalf of Accused No.7, Criminal Petition No.7851 of 2013 is filed on behalf of Accused No.6 and Criminal No.7859 of 2013 is filed on behalf of Accused No.9, all under Section 482 Cr.P.C. seeking to quash the proceedings that are pending against them in C.C.No.332 of 2013 on the file of the Court of XI Special Magistrate, Erramanzil, Hyderabad.

2. Heard the submission of learned counsel for the petitioners, the learned Assistant Public Prosecutor, who is representing respondent No.1, as well as the learned counsel appearing for respondent No.2. Gave anxious consideration to the contents of the decisions that are relied upon by learned counsel for the petitioners in all the three cases and learned counsel for respondent No.2.

3. A complaint was filed by respondent No.2 against Deccan Chronicle Holdings Limited, which is arrayed as Accused No.1, and 8 others, of whom the petitioners herein are also arrayed as Accused, alleging that they committed offence punishable under Section 138 of the Negotiable Instruments Act, 1881. The said complaint was taken on file and initially it was numbered as C.C.No.1588 of 2012. Thereafter a new number was assigned vide C.C.No.332 of 2013. Seeking to quash the proceedings that are pending against the petitioners, three Criminal Petitions are filed before this Court.

4. Thus, in the light of the aforementioned details and the relief sought for, the point that evolves for consideration is :

Whether there exist any justifiable grounds to quash the proceedings that are initiated against the petitioners/Accused Nos.6, 7 and 9 through C.C.No.332 of 2013 on the file of the Court of XI Special Magistrate, Erramanzil, Hyderabad, as prayed for.

5. Before adverting to and analysing the contentions raised by the respective parties to these Criminal Petitions, a brief narration of contents of the complaint is felt essential. Respondent No.2 (hereinafter be referred as the “Complainant” for the sake of convenience of discussion) is a Company incorporated under the Companies Act, 1954. Accused No.1 is a Limited Liability Company, which is also incorporated under the Companies Act. Accused Nos.2 to 9 are the Directors of Accused No.1 – Company. They were in charge of the day-to-day business activities of Accused No.1. In the month of June, 2011, Accused No.1 came out with an issue of 11.25% Redeemable Non-convertible Debentures of Rs.10-00 Lakhs each. The issue was offered to institutional investors by private placement through Industrial Development Finance Company Limited. The complainant was approached for subscribing to the said issue. The complainant purchased 300 Debentures for a sum of Rs.30-00 Crores. The maturity amount was payable on 26.06.2012. However, Accused No.1 addressed a letter to the complainant stating that due to tight liquidity conditions and market scenario, it is unable to repay the amount. Thirty days time was sought for payment. In the meeting of Debenture Holders, Accused No.1 undertook to repay the principal amount in three instalments along with interest by issuance of post-dated cheques. As per the commitment letter, Accused No.1 issued a cheque bearing No.001234, dated 01.08.2012 for a sum of Rs.3,73,59,762/- drawn on ICICI Bank Limited, Secunderabad Branch. The said cheque was deposited by the complainant. However, it was returned with an endorsement “Insufficient Funds”. The complainant issued a legal Notice demanding the Accused to pay the value of the dishonoured cheque, but they failed to do so.

6. With the averments, as mentioned above, the complainant laid prosecution against Accused Nos.1 to 9. As earlier detailed, Accused Nos.6, 7 and 9 are before this Court seeking to quash the proceedings initiated against them.

7. Making his submission, learned counsel for the petitioners contended that the contents of the complaint does not disclose commission of offence by the petitioners herein. He further contends that the contents of