The Supreme Court in its judgment in Pooja
Ravinder Devidasani Vs. State of Maharashtra & Anr rendered on 17 December
2014, has held that to
attract a case under Section 141 of the N.I. Act a specific role must have been
played by a Director of the Company for fastening vicarious liability. A
company may have a number of Directors and to make any or all the Directors as
accused in a complaint merely on the basis of a statement that they are in
charge of and responsible for the conduct of the business of the company without anything more is not a
sufficient or adequate fulfillment of the requirements under Section 141. The
Coourt said that the law laid down is that for making a Director of a Company liable
for the offences committed by the Company under Section 141 of the N.I. Act,
there must be specific averments against the Director showing as to how and in
what manner the Director was responsible for the conduct of the business of the
Company.
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| Supreme Court of India |
The Bench comprising of Sudansu Jyoti
Mukhopadhyaya and N.V. Ramana, JJ. was considering appeals by special leave filed
by the appellant challenging the judgment and order dated 6th October, 2010
passed by the High Court of Judicature at Bombay in Writ Petition Nos. 614-620
of 2010 whereby the High Court dismissed the writ petitions filed by the
appellant seeking quashing of the complaints filed by the Respondent No.2 under Section 138 read with Section 141 of the Negotiable Instruments Act,
1881
Respondent
No. 2, a finance Company, filed seven complaints under the N.I. Act against the
appellant and others viz., (1) Complaint No. 3370/SS/2008 claiming
Rs.1,64,69,801-14 (2) Complaint No. 3641/SS/2008 claiming Rs.1,06,55,289-91 (3)
Complaint No. 3368/SS/2008 claiming Rs. 1,41,95,806-40 (4) 3640/SS/2008
claiming Rs. 85,21,294/- (5) 3369/SS/2008 claiming Rs. 1,88,12,292/- (6)
3642/SS/2008 claiming Rs. 1,69,95,353-50 and (7) Complaint No. 4086/SS/2009 for
a claim of Rs. 8,08,973-25.
In
all the complaints the allegation was that the Respondent No. 2 Company had
extended trade finance facility to M/S Elite International Pvt. Ltd. to which
the appellant was a Director at the relevant time and several Cheques (119 in
number) issued by M/S Elite International Pvt. Ltd. aggregating to
Rs.8,64,58,810-16, in discharge of its liability towards part payment, stood
dishonoured with the banker’s remarks “insufficient funds”.
According
to the complainant, at the material time, the accused (appellant) was in charge
and at the helm of affairs of M/S Elite International Pvt. Ltd. and therefore
she is vicariously liable for the default of the Company as she is responsible
for the conduct of its business. Metropolitan Magistrate, 12th Court, Bandra,
Mumbai took cognizance of the complaints and issued process against the accused
(appellant) for the offence punishable under Section 138 of the N.I. Act.
The
aggrieved appellant filed Criminal Writ Petitions before the High Court under
Section 482, Cr.P.C. seeking quashing of the criminal proceedings pending
before the Metropolitan Magistrate. The High Court dismissed the writ petitions
filed by the appellant, against which the appellant had preferred the appeals
before the Apex Court.
The
appellant contended that she is merely a housewife who was appointed as a
Non-Executive Director of M/s Elite International Private Ltd. and had no
active role in the conduct of business of the Company, particularly in the
issuance of the cheques in question. As a matter of fact, the appellant had
resigned as the Director much before the issuance of the cheques in
question, her resignation was also approved by the Board of Directors in the
meeting held on 17th December, 2005. The resignation of the appellant as
Director of M/S Elite International Pvt. Ltd. has also been informed to the
Registrar of Companies by Form No. 20B under Section 159, Schedule V, Part II
of the Companies Act, 1956 when the annual return for the year ending on 31st
March, 2006 was filed. The trade facility was sanctioned by the Respondent No.
2 on 19th January, 2005 as per the Letter of Guarantee executed by the
appellant on the same date. The effective date of resignation of the appellant
as Director of the Company was 17th December, 2005. With the result of approval
of her resignation by the Board of Directors, the appellant ceased to play any
role in the activities of the Company. The Cheques in question were issued by the
Company in the year 2008 i.e. about two and half years after resignation of the
appellant as Director. This fact itself emphasizes that the appellant was not
involved in the affairs of the Company when the Cheques were issued and had no
role either in the conduct of the business of the Company or in issuing the
Cheques.
The
appellant contended that to fasten vicarious liability it is necessary under
Section 141 of the N.I. Act that the complainant must aver and prove how and in
what manner the appellant was responsible in the conduct of the business of the
Company. In other words, the complainant must explain the role specifically
attributable to the appellant in the commission of the offence.
Pre
contra, the respondent contended as per the Judgment of the Apex Court in Gunmala
Sales Private Ltd. Vs. Anu Mehta & Ors. (Criminal
Appeal No. 2228 of 2014) decided on October 17, 2014 once in a complaint filed
under Section 138 read with Section 141 of the N.I. Act, the basic averment is
made that the Director was in charge of and responsible for the conduct of the
business of the Company at the relevant time when the offence was committed,
the Magistrate can issue process against such Director and the basic averment
is sufficient to make out a case against the Director.
The
Apex Court held that 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 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 N.I. 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 N.I. Act. Referring to the decision in Girdhari
Lal Gupta Vs. D.H. Mehta & Anr. (1971) 3 SCC 189, the
Court observed that a person ‘in charge of a business’ means that the
person should be in overall control of the day to day business of the Company. “A company may have a number of Directors
and to make any or all the Directors as accused in a complaint merely on the
basis of a statement that they are in charge of and responsible for the conduct
of the business of the company without anything more is not a sufficient or
adequate fulfillment of the requirements under Section 141”, said the
Bench.
The Court added that there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company. The Bench opined that verbatim reproducing the wording of the Section without a clear statement of fact supported by proper evidence, so as to make the accused vicariously liable, is a ground for quashing proceedings initiated against such person under Section 141 of the N.I. Act
The
Apex Court held “the High Court did not deal the issue in a proper perspective and
committed error in dismissing the writ petitions by holding that in the
Complaints filed by the Respondent No. 2, specific averments were made against
the appellant. But on the contrary, taking the complaint as a whole, it can be
inferred that in the entire complaint, no specific role is attributed to the
appellant in the commission of offence. It is settled law that to attract a
case under Section 141 of the N.I. Act a specific role must have been played by
a Director of the Company for fastening vicarious liability. But in this case,
the appellant was neither a Director of the accused Company nor in charge of or
involved in the day to day affairs of the Company at the time of commission of
the alleged offence. There is not even a whisper or shred of evidence on record
to show that there is any act committed by the appellant from which a
reasonable inference can be drawn that the appellant could be vicariously held
liable for the offence with which she is charged.”
The Bench said, “we have no hesitation to hold that continuation of the criminal proceedings against the appellant under Section 138 read with Section 141 of the N.I. Act is a pure abuse of process of law and it has to be interdicted at the threshold.”
The Bench before parting with the case, cautioned the Courts not to permit abuse of the process of law. “Putting the criminal law into motion is not a matter of course. To settle the scores between the parties which are more in the nature of a civil dispute, the parties cannot be permitted to put the criminal law into motion and Courts cannot be a mere spectator to it. Before a Magistrate taking cognizance of an offence under Section 138/141 of the N.I. Act, making a person vicariously liable has to ensure strict compliance of the statutory requirements. The Superior Courts should maintain purity in the administration of Justice and should not allow abuse of the process of the Court.”, said the Court.
Accordingly, the Apex Court allowed the
appeals by setting aside the impugned judgment passed by the High Court and
quashed the criminal proceedings pending against the appellant before the Trial
Court.
