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IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD
E.V. Venugopal, J.
Mr. Venkata Vasudev - Petitioner
Versus
M/s. Gangadhar Oil Refinery India Limited and another - Respondents
Criminal Petition Nos. 9706, 9715, 9724, 9725, 9726 9727 and 9728 of 2015
Decided On : 10-10-2023
Cheque Bounce - Criminal Liability - Companies Act, 1956, Section 291; Negotiable Instruments Act, 1881, Sections 138, 141, 142 - The court discussed the liability of a director in a company for the issuance of dishonored cheques, emphasizing the legal and factual requirements for vicarious liability under the Negotiable Instruments Act. The court held that the petitioner, as an Executive Director, was responsible for the conduct and business of the company and thus vicariously liable under Section 141 of the Negotiable Instruments Act.
Fact of the Case:
The petitioner, an Executive Director of a company, sought to quash criminal proceedings against him for the dishonor of cheques issued by the company. The petitioner claimed non-involvement in the issuance of the cheques and financial crisis due to unpaid salary.
Finding of the Court:
The court found that the petitioner, as an Executive Director, was responsible for the conduct and business of the company and thus vicariously liable under Section 141 of the Negotiable Instruments Act. The court dismissed the criminal petition, stating that the petitioner should prove his case before the trial court.
Issues: The issues involved the liability of a director in a company for dishonored cheques and the legal and factual requirements for vicarious liability under the Negotiable Instruments Act.
Ratio Decidendi: The court emphasized that a person should fulfill the legal and factual requirements of being responsible for the conduct of the business of the company and in charge of the business of the company to be vicariously liable under Section 141 of the Negotiable Instruments Act.
Final Decision: The Criminal Petition was dismissed, and the court held that the petitioner should prove his case before the trial court. Other similar Criminal Petitions were also dismissed.
ORDER :
Since the issue involved in all these Criminal Petitions is one and the same, they are being heard together and disposed of by way of common order.
2. Criminal Petition Nos.9726, 9706, 9715, 9724, 9725, 9727 and 9728 of 2015 are filed seeking to call for the records and quash the proceedings against the petitioner herein in C.C.Nos.65, 66, 69, 71, 67, 70 and 68 of 2015 respectively on the file of the learned XXIV Special Magistrate at Erramanzil (for short, “the trial Court”) and pass such other order or orders.
3. Heard Ms. K. Annapurna Reddy, learned counsel for the petitioner, Mr. K. Rama Rao, learned counsel representing Mr. V. R. Avula, learned counsel for respondent No.1 and Mr. Vizarath Ali, learned Assistant Public Prosecutor appearing for the respondent state.
4. For the sake of convenience, the facts in Criminal Petition No.9796 of 2015 are discussed hereunder:-
5. The brief facts of the case are that respondent No.1 is the Company registered under the Indian Companies Act, 1956 and doing business in the name and style of M/s. Gangadhar Oil Refinery India Limited, dealing in manufacturing mineral oils, liquid paraffin, petroleum jelly, rubber process oils, industrial and automotive lubricants, transformer oils and supply of Indonesian Steam Coal and South African steam coal.
6. Accused No.3 is the Company registered under the Indian Companies Act, 1956 and doing business in the name and style of M/s. Bheema Cements Limited. Accused Nos.4, 5, 6, 7, 8 and 9 are the Chairman, Managing Director, Whole-time Director, Director, Director and Executive Director of the said Company respectively. Accused No.3 is one of the customers of respondent No.1 Company and for the sake of business, the Company used to purchase Indonesian steam coal and South African steam coal on credit from respondent No.1 by placing purchase orders. Accordingly, respondent No.1 Company used to supply the same from Visakhapatnam Port and Gangavaram Port to the plant of accused No.3 company at Ramapuram, Mellacheruvu Mandal, Nalgonda District, Andhra Pradesh. For the said supplies accused No.3 used to make part payments off and on by way of letter of credit/RTGS/PDC and maintaining the running account with the client since 2011. Respondent No.1 company submits that after adjusting all the amounts paid by accused as per the ledger maintained by respondent No.1, an amount of Rs.4,08,75,201/- is due as on 30.10.2013.
7. On repeated demands made by respondent No.1, accused Nos.1 and 2 being the authorized signatories of accused No.3 issued the cheques bearing Nos. 029619, 029620, 029621, 029622, 029623 and 029624 dated 30.10.2013 for Rs.50,00,000/- respectively and cheque No. 029625 dated 30.10.2013 for Rs.51,12,983/- drawn on Corporation Bank, Large Corporate Branch (1090) Hyderabad in favour of respondent No.1 towards part payment of the outstanding balance amount due to respondent No.1.
8. On presentation, the said cheques were dishonoured with an endorsement “Insufficient Funds” vide cheque return Memos dated 01.11.2013. After intimation about the same, accused have made part payment of Rs.33,00,000/- and as per instructions given by the accused, respondent No.1 presented the said cheques for collection on 17.01.2014 through its Banker HDFC Bank Limited, cheques deposited in HDFC Bank, Jagadamba Branch, Visakhapatnam, but again, the said cheques were returned with an endorsement “Account freezed/Blocked” vide cheque return memo dated 18.01.2014 and the said intimation was received by respondent No.1 from their Bankers on 10.02.2014. Even after the said dishonour of cheques, the accused again made some part payment for a sum of Rs.2,45,000/- on different dates.
9. Respondent No.1, aggrieved by the said dishonour of cheque filed C.C.No.65 of 2015 before the trial Court stating that the accused have committed the offence punishable under Sections.138 and 142 of the Negotiable Instruments Act, 1881 and accused Nos.1, 2, 4 to 9 are jointly and severally liabl
Vicarious liability of a director in a company for dishonored cheques under Section 141 of the Negotiable Instruments Act.
Specific averments showing a Director's responsibility for the conduct of the company's business are necessary to establish liability under Section 141 of the Negotiable Instruments Act, 1881.
The necessity of specific averments in the complaint to establish the liability of the accused and the burden of proof on the accused to show lack of responsibility for the company's affairs.
Directors cannot be held vicariously liable for a company's dishonoured cheque without specific allegations of their involvement in the company's operations, as required under Section 141 of the N.I.....
Non-executive directors are not automatically liable under the Negotiable Instruments Act, and specific averments are required to establish vicarious liability.
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.
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.
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